As many have noted, this summer has seen one bank after another slapped with fines or rocked by reports of wrongdoing. You’ve probably heard something about Libor or credit-card overcharges or money-laundering, but it can be hard to keep track. We’ve laid out the details on some of the most notable cases, including fines and resignations, and which investigations aren’t over yet.
Libor fixing
The banks: Barclays, JPMorgan Chase, Citigroup, UBS, Deutsche Bank and more.
The details: In late June, Barclays settled with British and American regulators over charges that it manipulated the Libor, a critical international interest rate set in London each day by a panel of banks. Barclays traders tried to rig the rate (and its eurozone counterpart, the Euribor) in order to benefit particular trades — schemes clear from e-mails where traders promised one another bottles of champagne for their help. Also, during the financial crisis, Barclays submitted artificially low rates to make the bank look stable.
This kind of behavior wasn’t limited to Barclays, and the investigation is still growing.
Who’s been hurt? Ordinary consumers and investors.
Libor is used as a benchmark for trillions of dollars in financial contracts, from derivatives and student loans to credit cards. If the rate was messed with, consumers could have paid artificially high rates, or investors could have lost out if rates were too low. And submitting artificially low rates during the financial crisis could have misled the public and regulators about the health of the banking system.
Who’s taken a fall? Barclays’ chief executive, chairman and chief operating officer have all stepped down. The Libor itself is also being targeted for reforms by the British government.
Penalties: $453 million in a settlement from Barclays to the U.S. Justice Department and Commodity Futures Trading Commission, and the U.K.’s Financial Services Authority.
What does Barclays say? In their settlement with the Justice Department, the bank admitted that traders tried to rig rates and also acknowledged low-balling rates during the financial crisis. CEO Robert Diamond has said that no one “above desk supervisor level” knew about traders’ scheming and that he didn’t know about rate-suppression by the bank until the settlement was reached this summer.
Who’s still under investigation? More than a dozen banks have disclosed that they are under investigation by U.S. or other regulators. They have all said they are cooperating with requests for information.
• UBS reported in early 2011 that some regulators — including the anti-trust division of the Justice Department — had promised them leniency in exchange for cooperating with the investigation, but the bank could still face charges from other regulators. Some individual traders have also reportedly been offered nonprosecution agreements. The bank has reportedly fired or suspended more than 20 staffers in the wake of the scandal. UBS was sanctioned by Japanese regulators in December for traders’ trying to manipulate the Tibor, Tokyo’s Libor equivalent.
• Citigroup disclosed ongoing investigations in a recent filing. Japanese regulators also sanctioned Citigroup in December as part of their investigation into rate-rigging by Tokyo traders.
• Deutsche Bank in July said an internal investigation had identified a “limited number” of staffers who were involved in rate manipulations, and the bank cleared all senior management.
•Royal Bank of Scotland says it has fired four employees and maintains that the wrongdoing is confined to a “handful” of individuals.
• Credit Suisse, HSBC, JPMorgan Chase, Bank of America and a few other international banks have also acknowledged they are part of the Libor probe.
A blind eye to money-laundering
The bank: HSBC.
The details: A scathing report released by the U.S. Senate in July alleged that HSBC failed over the past decade to perform basic anti-money-laundering protections and evaded Treasury sanctions against Iran, Myanmar and others. The report says HSBC allowed billions in cash to flow between Mexico and the U.S. despite warnings that drug money was involved; opened Cayman Island accounts for customers with little-to-no background information; and provided cash to banks with ties to terrorism. The report also faulted the government’s Office of the Comptroller of the Currency for taking virtually no action against the bank.
Who’s been hurt? Well, we know who hasn’t been hurt: Mexican drug cartels, Saudi Arabian banks and others who may have moved money with little scrutiny.
Who’s taken a fall? HSBC’s head of compliance resigned July 18.
Penalties: $27.5 million, in a fine to Mexican regulators.
In a recent financial disclosure, HSBC said it had put aside $700 million as a “best estimate” of what it may have to pay U.S. regulators. The Justice Department, OCC, Treasury and others are investigating.
What does HSBC say? The bank has apologized and promised reforms are already underway. (It made similar claims back in 2003, when it was cited for similar violations.)
The London Whale’s big losses
The bank: JPMorgan Chase.
The details: Last spring JPMorgan Chase reported staggering losses from a risky derivatives trade run by the bank’s London office. Since then, the estimated losses have almost tripled, to $5.8 billion.
Who’s taken a fall? Bruno Iksil, a.k.a. the “London Whale,” who was the trader in charge of the blown-up trade, left the bank in July. Ina Drew, who was in charge of the bank’s investment unit, resigned in May and agreed in July to return two years of pay to the bank.
What does the bank say? CEO Jamie Dimon has apologized for inadequate risk management and for initially dismissing reports of losses as “a tempest in a teapot,” but maintained it was money lost by shareholders — not customers or taxpayers.
Who’s investigating? At least 11 state, federal and British agencies are investigating the losses as of August. In June, the Securities and Exchange Commission and the CFTC told Congress they are looking into how JPMorgan disclosed risks. The OCC, Federal Reserve and Federal Deposit Insurance Corp. each said they were examining JPMorgan.
Why does it matter? JPMorgan has lobbied heavily against regulations that could put a damper on risky trades such as this one. For example, the Volcker Rule is meant to ban proprietary trading — when a bank trades for profit, using its own funds, rather than those of customers. The rule hasn’t yet been fully implemented. The head of the OCC said in June that the agency hasn’t determined whether the rule would have covered JPMorgan’s trade.
Misleading customers on credit-card services
The bank: Capital One.
The details: On July 18, Capital One settled with the Consumer Financial Protection Bureau and the OCC over pressuring customers to buy unnecessary and costly account features and misleading them about benefits, requirement and eligibility.
Who’s been hurt? The settlement estimates about 2 million Capital One credit-card holders were affected.
The settlement: $210 million — of which $150 million will be returned to harmed customers, for a payment of about $70 each.
Did the bank admit wrongdoing? Kinda, sorta. In a statement, the bank blamed third-party vendors for the swindling but apologized and said it was accountable for its contractors’ actions.
Steering minorities into subprime loans
The bank: Wells Fargo.
The details: On July 12, Wells Fargo settled with the Justice Department over claims that the bank steered African-American and Latino customers into high-interest subprime loans and charged them more than it did white borrowers with similar qualifications. The Justice Department described a pattern of systemic discrimination between 2004 and 2009.
Who’s been hurt? Roughly 34,000 black and Latino borrowers in 36 states.
The settlement: $175 million — of which $125 million will go to harmed borrowers and $50 million will go to help with down payments in areas of the country hit hard in the crisis and where the Justice Department found widespread evidence of discrimination.
Did bank admit wrongdoing? Nope. The bank still denies Justice’s claims, saying the settlement was to avoid a long legal battle.
Doing business with Iran
The banks: Standard Chartered and ING Bank.
The details: In June, ING Bank settled with the Treasury for violating sanctions against Cuba, Iran and other countries. In more than 20,000 transactions — totaling $1.6 billion — ING removed or disguised references to embargoed countries in order to skirt sanctions. In what seems to be a much larger-scale case, New York state filed an order Aug. 6, alleging that Standard Chartered had also flouted Treasury sanctions by allowing as much as $250 billion worth of transactions from Iranian clients to pass through its New York office and, like ING, taking deliberate steps to obscure the country of origin. Most of the action happened in “U-Turn transactions,” which involved Iran and passed through the U.S. but started and ended in non-U.S. banks.
Settlements: $619 million from ING to the Justice Department and the Manhattan District Attorney, who were investigating alongside the Treasury; and $340 million from Standard Charted to New York, in a settlement announced August 14. Standard Chartered will keep its license to operate in New York, which the state’s financial regulator had threatened to revoke.
What does Standard Chartered say? When New York first filed its order, the bank responded that only $14 million of the $250 billion in transactions actually violated sanctions. Standard Chartered’s announcement on the settlement last week doesn’t mention that figure (The bank did not respond to our requests for comment.) The precise wording of the settlement is still being worked out, but New York says that Standard Chartered agreed that the “conduct at issue” involved $250 billion.
