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, resignations, and which investigations aren’t over yet.
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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
emails 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. Regulators first started getting worried about Libor in
2008. And in the wake of Barclays’ settlement, officials at the Bank of
England and the New York Fed have
come under fire for not pressuring the British Bankers’ Association,
the industry trade group
that oversees the Libor, to do more to reform the way the rate was set then.
Who’s been hurt
Ordinary consumers and investors.
Libor is used as a benchmark for trillions of dollars in financial
contracts, from derivatives on down to student loans and 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’ CEO, 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 lowballing rates during
the financial crisis. CEO Robert Diamond
has said no one “above desk supervisor level” knew about traders’
scheming, and that he did not 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 non-prosecution agreements. The bank has reportedly fired or suspended more than 20 staff 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, the bank said that an internal investigation had
identified a “limited number” of staff who were involved in rate
manipulations, and cleared all senior management. -
Royal Bank of Scotland: RBS says they have 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.
Key reads
For a history of the Libor, and how it got so important, see this
London Review of Books essay from
2008. Also see the Wall Street Journal’s early
reporting about banks lowballing
Libor, and the Financial Times’ interactive
explainer.
A Blind Eye to Money Laundering
The bank
HSBC
The details
A
scathing report released by the U.S. Senate this July alleged that
HSBC failed over the last 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 drug money was involved, opened
Cayman Island accounts for customers with little-to-no background
information, and provided cash to banks with terror ties. The report also
faulted the government’s Office of the Comptroller of the Currency for
taking virtually no action against the bank despite being aware of
problems for years.
Who’s been hurt
Well, we know who’s not 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.)
Key Reads
Here’s the
Senate’s full report. If you don’t have time for all 340 pages,
Reuters has long been
covering the
bank’s lapses. And if you want a quick overview of the report itself,
we broke out the
most remarkable stats.
The London Whale’s Big Losses
The bank
JPMorgan Chase
The details
This 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, aka 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 in July agreed to
return two years of pay to the bank.
What’s 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
that it was shareholder money lost—not customers’ or
taxpayers’.
Who’s investigating?
At least eleven 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 to
shareholders and regulators. The OCC, the Federal Reserve, and the
Federal Deposit Insurance Corporation each said that they were examining
JPMorgan’s risk management oversight.
Why does it matter?
JPMorgan has
lobbied heavily against regulations that
could put a damper on risky trades like this one. For example, the
Volcker Rule is meant to ban proprietary trading—when a bank trades for
profit, using its own, rather than customers’ funds. 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.
Key reads
For a blow-by-blow, start with the Wall Street Journal’s
coverage of
the London Whale. See also New York Magazine’s recent
interview with Dimon,who says the bank has “crossed the t’s
and dotted the i’s and put in new rules, and we’re
fine.”
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 Hispanic 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 Hispanic borrowers in 36
states.
The settlement
$175 million. $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 Wells admit wrongdoing?
Nope. The bank still denies the DOJ’s claims,
saying it settled to avoid a long legal battle.
Key Reads
The Washington Post
recently detailed the lasting impact on black and Hispanic communities
of credit scars from subprime fiascos. We’ve also reported on complaints
that Wells Fargo has
fallen short in its upkeep of foreclosed homes in black and Hispanic
neighborhoods.
Misleading Customers on Credit Card Services
The bank
Capital One
The Details
On July 18th, Capital One
settled with the Consumer Financial Protection Bureau and the OCC for
pressuring customers to buy unnecessary and costly account features and
misleading them about benefits, requirement, and eligibility.
Who’s been hurt?
The settlement estimates some two million Capital One credit
card holders were affected.
The settlement
$210 million. $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.
Wrongful Foreclosure on Members of the Military
The bank
Capital One
The details
On July 26th, Capital One settled with
the Justice Department over allegations that the bank violated the
Servicemembers
Civil Relief Act, which gives active-duty military a temporary break
from some debts, and puts a cap on interest rates they can be charged.
Capital One violated those provisions, resulting in wrongful foreclosures
and overcharges.
Who’s been hurt
Roughly 4,000 members of the military with Capital One credit
cards, loans, or other products between June 2005 and November
2011.
The settlement
$12 million, to be paid to harmed servicemembers.
What’s the bank say?
Capital One says it cooperated with the Justice Department’s
investigation, and has already taken
some extra steps to offer bonus benefits to the
military.
Key read
Similar violations may be flying under the radar. A Government
Accountability Office report released in July
faulted regulators for not watching banks more closely. The report found
that the government reviewed less than half of U.S. banks for compliance,
and relied on banks to identify which loans actually involved members of
the military.
Doing Business with Iran
The banks
Standard Chartered, 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 on August 6th, 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. They were legal until 2008. New York
alleges the bank didn’t keep accurate records and sought to mislead
regulators about even legal trades.
Settlements
$619 million from ING to the Justice Department and the
Manhattan District Attorney (who were investigating alongside the
Treasury).
$340 million from Standard Charted to New York, in a
settlement announced August 14th. 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. (The New York Times
explained the gray area behind the huge disparity in these
numbers).
More to come?
Standard Chartered could still see fines from other
regulators, though the Treasury, Fed, and Justice Department were
reportedly
taken by surprise by New York’s order, as they
hadn’t yet determined the scope of wrongdoing. Standard Chartered had
previously disclosed that they were cooperating with inquiries from
those and other agencies
They’re not the only bank in hot water here. Remember HSBC’s
money-laundering lapses? The Senate’s report also alleged a pattern of
evading sanctions, and the bank says it is still
under investigation by the Treasury.
Icons from The Noun Project.
