Back to top

Analyst Blog

On Monday, Switzerland’s competition commission Wettbewerbskommission (WEKO) revealed the names of 8 big banks amid the widespread global investigation into the alleged foreign exchange rates manipulation. The regulator has openly confirmed the involvement of these banks in manipulation.

Notably, Swiss authorities became the foremost regulatory body to initiate a formal investigation into foreign exchange rate rigging. However, financial regulators in U.S., Europe and Asia are still investigating the role of the banks in the manipulation of currency rates. The foreign-exchange rates aid fund managers to assess the apparent day-to-day value of investments.

Banks under scrutiny include Swiss-based UBS AG (UBS - Analyst Report), Credit Suisse Group AG (CS - Snapshot Report), Julius Baer and Zurcher Kantonalbank, JPMorgan Chase & Co. (JPM - Analyst Report), Citigroup Inc. (C - Analyst Report), Barclays PLC (BCS - Analyst Report) and The Royal Bank of Scotland Group plc (RBS - Snapshot Report). Most of these banks have refrained from issuing comments, while some have agreed to co-operate with regulators.

However, Credit Suisse has expressed its surprise over the allegation, as the bank was not under the purview of preliminary scrutiny by WEKO last year. Though the bank has referred to such accusations as incorrect and detrimental to its reputation, it is co-operating with the regulators.

The Commission is of the opinion that these banks’ traders have fixed artificial benchmark foreign exchange rates after consultations among themselves to make profits. Further, such collusion among banks is believed to have affected the significant currencies during trading.

Manipulation of currency rates by major financial institutions triggered thorough investigations by regulatory bodies across Europe, Asia and America. Such investigations have cost several major global banks billions of dollars in settlements. Alongside, we apprehend such scandals to dent the financials of these banks over the long term.

Therefore, burdened under the pressure of such investigations, banks have terminated a number of traders along with the closure of electronic chat rooms – the mode of communication between various banks. Moreover, such probes are negatively impacting the markets as evident from the downturn in foreign exchange trading volumes in recent months.

According to WEKO, the investigation would be extended over months to get completed, and if found guilty, banks would be levied with heavy penalties. These fines are expected to be equivalent to 10% of the revenue produced by the banks from foreign exchange trading in Switzerland over the last three years.

Recently, in Feb 2014, Benjamin Lawsky, superintendent of New York’s Department of Financial Services (DFS) also ordered currency probe for foreign exchange manipulation over a number of major banks. These banks included Deutsche Bank AG (DB - Analyst Report), The Goldman Sachs Group, Inc. (GS - Analyst Report) and Lloyds Banking Group plc (LYG - Snapshot Report) among several others.

Regulatory authorities are investigating scandals related to the heightening foreign exchange rate fixing and are determined to put forward a landmark judgment to terminate such shrewd practices in the future, bring justice to the sufferers and punish the wrongdoers. While settlement of such issues will put to rest a long-drawn investigation and bring reprieve to the banks, this comes as a huge blow to their financials.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
RPC INC RES 24.91 +8.35%
LITHIA MOTO… LAD 94.59 +4.60%
DELTA AIR L… DAL 39.15 +3.90%
FLAMEL TECH… FLML 14.51 +3.50%
SOUTHWEST A… LUV 28.87 +2.92%