Big banks undergoing under greater scrutiny by government agencies


Pedestrians stand on the sidewalk outside a UBS bank branch in Lausanne, Switzerland. Recent government inquiries into JPMorgan Chase and Citigroup are part of a broader investigation that includes Barclays, Royal Bank of Scotland, UBS, Deutsche Bank and Credit Suisse. (Gianluca Colla/Bloomberg News)
November 1, 2013

Government authorities have expanded investigations into multiple business lines at some of the nation’s largest banks, a sign that the legal morass enveloping the industry has no clear end in sight.

Within the last year, big banks have disclosed a lengthy list of investigations, lawsuits and settlements that continue to grow. Federal prosecutors and regulators have been taking aggressive steps to hold Wall Street accountable for sins of the financial crisis and misconduct that has emerged in the aftermath.

One of the latest probes involves the possible ma­nipu­la­tion of the global foreign-exchange markets. On Friday, JPMorgan Chase and Citigroup disclosed in regulatory filings that “various government authorities” had requested information about their trading activities. Neither bank provided details of the probes, but the inquiries are a part of a broader investigation that includes Barclays, Royal Bank of Scotland, UBS, Deutsche Bank and Credit Suisse, according to regulatory filings.

A British regulator, the Financial Conduct Authority, initiated the probe, reviewing whether traders at different banks conspired to rig exchange rates — charges that closely mirror the ongoing investigation into the rigging of the London interbank offered rate, or Libor.

The country’s largest banks are enmeshed in several sweeping investigations, including widening probes of the underwriting and selling of bundled home loans that nearly toppled the economy.

Bank of America said earlier this weeka U.S. attorney plans to recommend that the Justice Department file a civil lawsuit against the bank over its mortgage securities dealings. The bank said a working group comprising state and federal prosecutors is investigating its sale, packaging and underwriting of home loans and residential mortgage-backed securities.

That same working group, an outgrowth of the Obama administration’s federal mortgage task force, has launched similar probes into eight other banks: Wells Fargo, Citigroup, Goldman Sachs, Morgan Stanley, RBS, UBS, Deutsche Bank and Credit Suisse, according to a person familiar with the investigations who was not authorized to speak publicly.

Officials at the banks and Justice Department declined to comment.

Justice officials attorneys have picked up the pace of mortgage-related investigations in the last two quarters based on regulatory filings. Mortgage securities, once a brisk business for Wall Street, were at the heart of the crisis. Banks, after issuing loans, would pool the mortgages and market the bundles as investments. When the housing market crashed, the securities were worthless and left investors saddled with massive losses.

While the Justice Department expands its investigations into mortgage misconduct, it remains locked in negotiations for a possible $13 billion settlement with JPMorgan over bad bundles of home loans, according to people familiar with the discussions. The department plans to use the case as a blueprint for reaching similar deals with other banks.

According to SNL Financial, the six largest banks have agreed to pay more than $65 billion in credit crisis and mortgage-related settlements since 2010. The research firm said Bank of America, which has struggled to shake off the legal troubles of Countrywide Financial since buying the lender in 2008, accounts for nearly $44 billion alone.

Crisis-era investigations are only a fraction of the litigation troubles confronting banks. A number of institutions disclosed details about probes into more recent activity in their regulatory filings.

JPMorgan, for instance, disclosed that the U.S. Attorney’s Office for the Southern District of New York and the Office of the Comptroller of the Currency are reviewing whether the bank ignored red flags about swindler Bernard Madoff in order to earn make more in fees and commissions. The bank had acknowledged the probes in prior reports but never named the investigators.

Meanwhile, an investigation into JPMorgan’s hiring practices in Hong Kong has extended beyond the Securities and Exchange Commission, with the Justice Department and “authorities in other jurisdictions” requesting documents from the firm.

Both JPMorgan and Barclays disclosed that federal prosecutors in the Southern District of New York are investigating whether the banks engaged in manipulative bidding in the energy markets. The probes stem from investigations initiated by the Federal Energy Regulatory Commission, which accused the banks of charging California and Midwest electricity grids more than prevailing power prices.

It remains unclear whether these investigations and others that are expected to follow will quell criticism of the government’s policing of the financial services industry. The lack of criminal prosecutions of high-ranking executives remains a point of contention among industry experts and others following these cases. Yet others say the rash of multimillion-dollar settlements could go a long way in preventing future misconduct.

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