Banks putting aside up to US$2.7b for foreign exchange rigging fines

Banks began have been setting aside money for currency-rate rigging probes recently, with as much as US$2.7 billion provisioned, indicating settlements are drawing near.

Royal Bank of Scotland set aside £400 million (HK$5 billion) on Friday for the foreign-exchange probes and HSBC will set aside about the same amount when it releases third-quarter earnings today, a source said.

Citigroup took a US$600 million legal charge on Thursday, saying it was involved in "rapidly evolving regulatory inquiries and investigations". Barclays set aside £500 million the same day for resolving the foreign-exchange investigations.

All four were in settlement talks with Britain's Financial Conduct Authority (FCA), sources said. Authorities on three continents have been looking into allegations that traders at some of the banks used instant-message groups to share information about their positions and client orders to rig the US$5.3 trillion-a-day foreign-exchange market. Some US authorities are also in talks, and charges against a bank could come by the end of the year, sources have said.

Gary Greenwood, an analyst at Shore Capital, said banks were restricted by accounting rules to set aside reserves only where they have "reasonable line of sight" as to the likely costs. "I suspect FX provisioning levels will require increasing further," he said.

The FCA was also in discussions with JP Morgan Chase and UBS, with agreements expected this month, sources said.