NEW YORK (TheStreet) -- The 10 banks with the largest foreign exchange trading market share could face up to $14.5 billion in litigation costs, according to a Moody's report that comes on the heels of a $600 million charge taken by Citigroup (C) last week.
Other U.S. banks taking big third-quarter charges tied to alleged foreign exchange misconduct were JPMorgan Chase (JPM) ($1.1 billion) and Bank of America (BAC) ($225 million). The biggest third-quarter charge tied to FX was at UBS (UBS) , which set aside $1.44 billion.
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"Investigations of alleged misconduct in FX sales and trading at several global financial institutions are ongoing at the UK Financial Conduct Authority and the Serious Fraud Office, and at the US Department of Justice and other US regulators," Moody's notes, adding that "the provisions are credit negative because they materially reduced earnings and underscore the ongoing contentious legal and regulatory environment for banks."
The $14.5 billion Moody's estimate, which it calls an adverse case, is a far cry from the roughly $41 billion estimate from Citigroup analyst Kinner Lakhani in October. Citigroup arrived at its estimate using a Reuters report on potential settlements with a U.K. regulator and extrapolating by using fines over alleged price-fixing of LIBOR, a common interest rate benchmark. Citigroup also did not take into account potential reduction of fines for cooperating with regulators.
Moody's, by contrast, focused chiefly on market share and cautioned that its report "does not differentiate amongst market participants with regard to the extent of any misconduct which will likely also be a factor in final settlements."
In the foreign exchange cases, regulators accuse the banks of rigging benchmark rates by sharing client orders and agreeing on how they would trade, according to reports by several news organizations, all citing anonymous sources.
Foreign exchange-related litigation is only the latest regulatory problem for banks, which have already paid tens of billions of dollars to settle mortgage-related penalties, and billions more tied to the LIBOR cases.
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