Back to top

Image: Bigstock

HSBC, Deutsche Bank Pay Penalty for FX Rate Manipulation

Read MoreHide Full Article

Two major foreign banks, HSBC Holdings plc (HSBC - Free Report) and Deutsche Bank AG (DB - Free Report) , resolved legacy business misconduct matters in the United States. The banks were accused of rigging foreign exchange (FX) rates.

HSBC Fine & Allegations

HSBC was fined $175 million for its “unsafe and unsound practices in its foreign exchange (FX) trading business” by the Federal Reserve. The bank was accused of failure of oversight and internal control of its FX traders who buy/sell currencies “for the firm's own accounts and for customers.”

The banking regulator alleged that the bank’s dealers shared confidential information about client orders and matched up trades to benefit them. The bank was also accused of attempting to manipulate FX rates.

HSBC is now required to improve control and fix shortfalls in “governance, risk management, compliance, and audit policies” pertaining to its FX trading operations. The company spokesman Rob Sherman said, “We are pleased to have resolved this matter related to practices in the FX market from 2008-2013.”

Deutsche Bank Penalty & Allegations

In a separate litigation, Deutsche Bank agreed to resolve a class-action lawsuit by customers that alleged it of rigging FX rates. The bank will be paying $190 million (£142.09 million) as penalty.

The settlement, filed in the U.S. District Court, Southern District of New York, still requires judge’s approval. Nonetheless, Deutsche Bank did not admit to any wrongdoing.

Deutsche Bank is 15th of the 16 banks to settle that were accused of FX rate rigging. The investors had alleged that the banks conspired to rig key FX rates by sharing confidential orders and trade information to match up their strategies.

The only other bank yet to resolve the matter is Credit Suisse Group AG . The others that have already settled the matter include Bank of America Corporation (BAC - Free Report) , Morgan Stanley, Barclays PLC, Citigroup Inc., Royal Bank of Canada and JPMorgan Chase & Co.

Our Take

The allegations of business mishandlings continue to remain in focus for major global banks. While a majority of the legacy issues have been resolved, there is still uncertainty related to the same. These have adverse impact on the banks’ financials.

Over the past few years, both HSBC and Deutsche Bank resolved several such matters and paid billions of dollars as penalty. These had significant adverse impact on their performance and also led to an increase in litigation provisions.

Nevertheless, both HSBC and Deutsche Bank are gradually moving past their legacy business misconducts and undertaking measures to focus on improving top line and efficiencies.

Over the past year, shares of HSBC and Deutsche Bank have rallied 31.3% and 33.1%, respectively. Shares of both the companies have outperformed the industry’s gain of 29.7%.



Currently, Deutsche Bank carries a Zacks Rank #4 (Sell), while HSBC sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>