Swiss Name 8 Banks in Forex Manipulation Probe

Some expected names, but a couple of surprises when the the Swiss Competition Commission named the 8 banks under scrutiny relating to potential forex manipulation.  This comes, of course, on top of industry nervousness and concern over the scope of investigations, potential manipulation and, most of all, potential penalties and damages to be paid to regulators and law suit settlements.  

Given the global scope of the investigations, with even jurisdictions like New Zealand getting involved, the smart money should be betting that this will need more time to play out before we can start putting estimates of dollars and cents on the fix.

How complex are banks? Let us count the ways.

Researchers at the Federal Reserve just published research providing measures on the complexity of banks based on Organization, Business Lines and Business Practice.  They provide some interesting charts that I've attached here.

You can check out the research and the report by going to the Fed's website here.

UK: 9 US: 8 / Keeping score in the LIBOR prosecutions

Bloomberg News reported today that additional ex-ICAP brokers will be charged by the UK Serious Fraud Office for alleged LIBOR manipulation, bringing the total criminal charges in the UK to 9.  This compares with 8 charged by the US Department of Justice.

US Attorney General Eric Holder stated last year that LIBOR prosecutions are a top priority for the DOJ but many writers and commentators, including Judge Rakoff, have questioned the lack of prosecution of senior finance executives over the financial crisis.  While the alleged LIBOR manipulation is not generally thought of as being a cause or contributor of the financial crisis, it did occur during the same time and also falls under white collar financial crimes.  Not that we're keeping score, but folks will be watching to see how the DOJ performs in prosecuting LIBOR.  

Law Firms Hired in Alleged FX Rate Manipulation Cases

This week Legal Week reported the names of the law firms representing various major banks and representing some of the plaintiffs, mostly pension funds, in many of the lawsuits that have been filed to date alleging foreign exchange rate manipulation by the banks.  Many of the suits have been consolidated into a class action lawsuit.

What did the BOE Know about the FX Fix? also, WM Reuters Says ... No Imminent Changes

BOE weather report is cloudy.  While BOE Governor Carney said last week that discussions before 2013 only referred to non-bank players potentially trying to manipulate the fix,  now Reuters reports that there are transcripts from chatrooms in 2012 where traders claimed that at a meeting the BOE agreed that there were advantages to banks sharing information on client fix orders.  The BOE originally said that minutes of the meeting involved were not prepared until June 2013, but subsequent searches by the BOE found emails indicating the minutes were circulated in July 2012.  And of course the BOE's suspension of an employee relating to this case muddies the waters further as to what the BOE knew and when regarding fx bank practices around the fix.

WM Reuters responded to an FT article last week that indicated that substantial changes to the fix would be coming shortly.  In a Reuters report the WM Reuters company said that in the FT article "words (such as) 'planning' and 'overhaul' are wrong. It makes it sound like there is something imminent happening and there is not."

UBS Announces Internal Investigation into Precious Metals Trading

The UBS annual report released Friday mentioned this as an outgrowth of their earlier begun FX investigation.  A couple of interesting points:

1) The mainstream reports over the last year have referred to alleged gold price fix manipulation.  Only 5 banks are involved in the benchmark rate setting process, and UBS is not one of them.  Goldbugs, on the other hand, have screamed market manipulation (by banks holding down the price of gold) for years.  While we are not gold market mavens, it appears difficult to believe that a long term strategy to hold down the market price of a commodity can be successful.  However, if any manipulation is found at all, we can expect many more conspiracy theories to see the light of day (and manipulation reports over the last few years will make them all a bit more believable).

2) Since the LIBOR scandal, UBS has developed a reputation of being the first bank to investigate allegations of wrongdoing and the first to approach regulators when anything untoward is found, trying to reduce or eliminate penalties.  Thus, this raises the question if once again, UBS is an early mover and additional precious metal trading investigations are to be begun.

Government Motors .... Just Wondering

     General Motors (GM) is in the news these days for safety issues surrounding an ignition defect "now linked to 12 deaths and at least 31 accidents over the past decade."  GM first reported publicly its own safety investigation and recall last month (February 2014), though there have been lawsuits over the years for several of the accidents.

    While we have no opinion on GM culpability and believe it prudent to wait for results of Congressional inquiries and other external and internal investigations, we wonder what it means that the U.S. government owned General Motors for a substantial and critical time period in this tragic story.

    The government injected $49.5 billion into GM in 2009 as part of the automaker's bankruptcy.  As a result, the U.S. owned 61% of GM.  Simply put, the government bought and owned General Motors.  The government reduced its position to 26% in late 2010, reduced again to 19% in late 2012, and sold down to ZERO in DECEMBER 2013.

    Now let's look at GM's chronology of its internal investigation thus far.  In the years 2005, 2006, 2007, 2011, 2012, and 2013 there were important developments and milestones in GM's findings and research into the ignition defect.  The U.S. government was the largest owner of GM in three of these critical years.  Of course, the government was also 61% majority owner for a period in which tragic car accidents continued.



CORPORATE GOVERNANCE

                                              SHAREHOLDER RESPONSIBILITY

                                                                                                            SECURITIES LAWS

We pose a few obvious, but interesting, questions:

*    What is the role of the Board of Directors?  Did the GM Board discuss the ignition defect safety investigation over the years?  In particular, did the Board members - including those installed by the U.S. government - perform their fiduciary and ethical responsibilities?

*    What is the responsibility of the U.S. government in its role as majority owner (2009-2010) and then dominant owner (2010-2013)?

*     As majority owner and dominant owner, did the government disclose all it knew about the evolving internal investigation as it sold large chunks of equity to the public?

*    Is the timing of GM's public announcement (February 2014) of this high-profile safety defect soon after the U.S. government's sale of its last holding in the company (December 2013) purely coincidental?