Billions of dollars of class action lawsuits against major banks operating globally are pending resolution in the coming months and possibly even years. The implications for the earnings of financial institutions are yet to be fully felt. Weighing further on the balance sheets of major banks, additional cost-cutting efforts can not be ruled out.
Last week, BNP Paribas announced the settlement of a class action lawsuit relating to the bank’s manipulation of forex rates, costing it $115 million. This is the total share of the French bank’s pie from a total of $2 billion in fines imposed on 16 major banks for mishandling client foreign exchange transactions.
The court case filed in New York represents the interests of thousands of clients of financial institutions which are usually referred to as “too big to fail”.
Is the Cat out of the Bag?
With the big settlement announced in New York last week, worries about bank shares among investors regarding the viability of the earnings of major banks are resurfacing. How deep are the pockets of major financial institutions and what cost-cutting efforts can be implemented should they be pressured by further fines?
The answer to the question comes on a case-by-case basis and many banks have already taken steps to fortify their management team in order to optimize their costs, with the most notorious example being the ousting of the former CEO of Barclays, Anthony Jenkins.
With more fines, are more cost-cutting efforts to follow?
With the defeat suffered in the U.S., clients of the banks potentially have further damages to seek out across other jurisdictions. Foreign exchange market rigging is unlikely to be forgotten by the media any time soon, more than 2 years after the first reports about forex manipulation surfaced.
ACY Securities Supports ASIC’s Product Intervention OrderGo to article >>
A number of cases have been filed with the London High Court and some insiders with knowledge of the matter claim that new settlements may come as early as in the fourth quarter of 2015. Other jurisdictions which are likely to be problematic for major banks include South Africa, the European Union and possibly beyond.
What’s Next for Big Banks?
From the look of it, a number of major banks are facing more legal hurdles across the U.K. and Europe. Following on from the regulatory decisions in the U.S. and the U.K., a European Commission investigation which was opened in January is also pending later this year.
Speaking to Finance Magnates’ reporters, a representative of the law firm Hausfeld, representing client interests in both the U.S. and U.K., has shared that the firm’s clients are divided into three major categories. Corporates which are using foreign exchange transactions for hedging and other purposes, institutional investors like pension funds, and private individuals who have traded high volumes represent the three major types of investors participating in the class action lawsuits.
Hausfeld is still analyzing the claims of its clients and assessing the damages that may have been incurred by them.
There are no barriers to bringing further class actions
“There are no barriers to bringing actions and it could be that claims across the board will mount later this year,” the Hausfeld representative explained.
By making banks admit wrongdoing this time around, global regulators have pressured the banks into voluntarily admitting misconduct. According to lawyers close to the investigations, the claims in the U.K. and across continental Europe are not legally binding without a manipulation confirmation from the European Commission which is expected to be announced later this year.
Sources close to the matter have also indicated to Finance Magnates that in addition to the European claims facing major banks, some action is also expected from Asian jurisdictions where a lot of foreign exchange transactions are being closed. Those will depend on the rules in the local jurisdictions across Asia.