JPMorgan Snared in Global Forex Trading Probe

JPMorgan Snared in Global Forex Trading Probe
Joe Mabel [CC BY-SA 3.0], via Wikimedia Commons

JPMorgan Chase & Co. (NYSE:JPM) announced on Tuesday, November 4th that it is involved in a U.S. criminal investigation into forex trading activities and boosted its estimate for “reasonably possible” losses on legal matters.

The financial titan noted in a statement accompanying its quarterly report that it is cooperating with the ongoing criminal probe by the Department of Justice as well as investigations by government regulators in the U.K. and other countries. The firm also pointed out it may require as much as $5.9 billion to cover losses beyond current reserves for legal matters. This figure is up $1.3 billion from the end of June, and the highest legal liability reserve since mid-2013.

Kinner Lakhani and a team of analysts at Citigroup said last month that cases related to the forex scandal could cost banks worldwide a total of $41 billion to settle.

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Statement from JPMorgan

“In recent months, U.S. government officials have emphasized their willingness to bring criminal actions against financial institutions,” the bank noted concerning the current legal environment. “Such actions can have significant collateral consequences for a subject financial institution, including loss of customers and business.”

“These investigations are focused on the firm’s spot FX trading activities as well as controls applicable to those activities,” the firm commented in its report. Although the firm is currently in negotiations to settle the cases, “there is no assurance that such discussions will result in settlements,” it noted.

Too big to fail does not mean too big to prosecute

U.S. Attorney General Eric Holder said over the summer that authorities were pursuing criminal cases against major banks, making it clear that major financial institutions aren’t too big to prosecute. The Justice Department earned guilty pleas from Credit Suisse Group AG (ADR) (NYSE:CS)’s main bank subsidiary for assisting Americans in avoiding taxes, and from BNP Paribas SA (EPA:BNP) (OTCMKTS:BNPQY) for transactions involving sanctioned countries such as Sudan, Iran and Cuba.

U.S. financial institutions began disclosing estimates for possible legal losses after the U.S. Securities and Exchange Commission told the firms in 2010 they should provide guidance “when there is at least a reasonable possibility” legal costs will be incurred.

JPMorgan Chase & Co. (NYSE:JPM) said its reserve estimate ranged from 0 to as much as $5.9 billion as of Sept. 30, and “involves significant judgment, given the varying stages of the proceedings.” The company already has set aside funds to cover hundred court cases.

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