BANKING - Scandal Scorecard

"A Scorecard For This Summer’s Bank Scandals" by Cora Currier and Lena Groeger, ProPublica 8/21/2012

As many have noted, this summer has seen one bank after another slapped with fines or rocked by reports of wrongdoing. You’ve probably heard something about Libor, or credit card overcharges, or money-laundering, but it can be hard to keep track. We’ve laid out the details on some of the most notable cases, including fines, resignations, and which investigations aren’t over yet.

Libor Fixing

The Banks

Barclays, JPMorgan Chase, Citigroup, UBS, Deutsche Bank and more

The Details

In late June, Barclays settled with British and American regulators over charges that it manipulated the Libor, a critical international interest rate set in London each day by a panel of banks. Barclays traders tried to rig the rate (and its Eurozone counterpart, the Euribor) in order to benefit particular trades, schemes clear from emails where traders promised one another bottles of champagne for their help. Also, during the financial crisis, Barclays submitted artificially low rates to make the bank look stable.

This kind of behavior wasn't limited to Barclays, and the investigation is still growing. Regulators first started getting worried about Libor in 2008. And in the wake of Barclays’ settlement, officials at the Bank of England and the New York Fed have come under fire for not pressuring the British Bankers’ Association, the industry trade group that oversees the Libor, to do more to reform the way the rate was set then.

Who’s been hurt

Ordinary consumers and investors.

Libor is used as a benchmark for trillions of dollars in financial contracts, from derivatives on down to student loans and credit cards. If the rate was messed with, consumers could have paid artificially high rates, or investors could have lost out if rates were too low. And submitting artificially low rates during the financial crisis could have misled the public and regulators about the health of the banking system.

Who’s taken a fall

Barclays' CEO, chairman, and chief operating officer have all stepped down. The Libor itself is also being targeted for reforms by the British government.
Penalties

$453 million in a settlement from Barclays to the U.S. Justice Department and Commodity Futures Trading Commission, and the U.K.’s Financial Services Authority.

What does Barclays say?

In their settlement with the Justice Department the bank admitted that traders tried to rig rates and also acknowledged lowballing rates during the financial crisis. CEO Robert Diamond has said no one "above desk supervisor level" knew about traders' scheming, and that he did not know about rate-suppression by the bank until the settlement was reached this summer.

Who’s still under investigation

More than a dozen banks have disclosed that they are under investigation by U.S. or other regulators. They have all said they are cooperating with requests for information.

• UBS reported in early 2011 that some regulators—including the anti-trust division of the Justice Department—had promised them leniency in exchange for cooperating with the investigation, but the bank could still face charges from other regulators. Some individual traders have also reportedly been offered non-prosecution agreements. The bank has reportedly fired or suspended more than 20 staff in the wake of the scandal. UBS was sanctioned by Japanese regulators in December for traders trying to manipulate the Tibor, Tokyo’s Libor equivalent.
• Citigroup disclosed ongoing investigations in a recent filing. Japanese regulators also sanctioned Citigroup in December as part of their investigation into rate-rigging by Tokyo traders.
• Deutsche Bank: In July, the bank said that an internal investigation had identified a "limited number" of staff who were involved in rate manipulations, and cleared all senior management.
• Royal Bank of Scotland: RBS says they have fired four employees and maintains that the wrongdoing is confined to a "handful" of individuals.
• Credit Suisse, HSBC, JPMorgan Chase, Bank of America, and a few other international banks have also acknowledged they are part of the Libor probe.

Key reads

For a history of the Libor, and how it got so important, see this London Review of Books essay from 2008. Also see the Wall Street Journal’s early reporting about banks lowballing Libor, and the Financial Times’ interactive explainer.

A Blind Eye to Money Laundering

The bank

HSBC

The details

A scathing report released by the U.S. Senate this July alleged that HSBC failed over the last decade to perform basic anti-money-laundering protections and evaded Treasury sanctions against Iran, Myanmar, and others. The report says HSBC allowed billions in cash to flow between Mexico and the U.S. despite warnings drug money was involved, opened Cayman Island accounts for customers with little-to-no background information, and provided cash to banks with terror ties. The report also faulted the government’s Office of the Comptroller of the Currency for taking virtually no action against the bank despite being aware of problems for years.

Who’s been hurt

Well, we know who’s not been hurt: Mexican drug cartels, Saudi Arabian banks, and others who may have moved money with little scrutiny.

Who’s taken a fall

HSBC’s head of compliance resigned July 18.

Penalties

$27.5 million, in a fine to Mexican regulators.

In a recent financial disclosure, HSBC said it had put aside $700 million as a "best estimate" of what it may have to pay U.S. regulators. The Justice Department, OCC, Treasury, and others are investigating.

What does HSBC say?

The bank has apologized and promised reforms are already underway. (It made similar claims back in 2003, when it was cited for similar violations.

Key Reads

Here’s the Senate’s full report. If you don’t have time for all 340 pages, Reuters has long been covering the bank’s lapses. And if you want a quick overview of the report itself, we broke out the most remarkable stats.

The London Whale’s Big Losses

The bank

JPMorgan Chase

The details

This spring JPMorgan Chase reported staggering losses from a risky derivatives trade run by the bank's London office. Since then the estimated losses have almost tripled to $5.8 billion.
Who’s taken a fall?

Bruno Iksil, aka the “London Whale,” who was the trader in charge of the blown-up trade, left the bank in July. Ina Drew, who was in charge of the bank’s investment unit, resigned in May, and in July agreed to return two years of pay to the bank.

What’s the bank say?

CEO Jamie Dimon has apologized for inadequate risk management, and for initially dismissing reports of losses as “a tempest in a teapot,” but maintained that it was shareholder money lost—not customers’ or taxpayers’.

Who’s investigating?

At least eleven state, federal, and British agencies are investigating the losses as of August. In June, the Securities and Exchange Commission, and the CFTC told Congress they are looking into how JPMorgan disclosed risks to shareholders and regulators. The OCC, the Federal Reserve, and the Federal Deposit Insurance Corporation each said that they were examining JPMorgan's risk management oversight.

Why does it matter?

JPMorgan has lobbied heavily against regulations that could put a damper on risky trades like this one. For example, the Volcker Rule is meant to ban proprietary trading—when a bank trades for profit, using its own, rather than customers’ funds. The rule hasn’t yet been fully implemented. The head of the OCC said in June that the agency hasn't determined whether the rule would have covered JPMorgan’s trade.

Key reads

For a blow-by-blow, start with the Wall Street Journal’s coverage of the London Whale. See also New York Magazine’s recent interview with Dimon,who says the bank has “crossed the t’s and dotted the i’s and put in new rules, and we’re fine.”

Steering Minorities into Subprime Loans

The bank

Wells Fargo

The details

On July 12, Wells Fargo settled with the Justice Department over claims that the bank steered African-American and Hispanic customers into high-interest subprime loans and charged them more than it did white borrowers with similar qualifications. The Justice department described a pattern of systemic discrimination between 2004 and 2009.

Who’s been hurt

Roughly 34,000 black and Hispanic borrowers in 36 states.

The settlement

$175 million. $125 million will go to harmed borrowers, and $50 million will go to help with down payments in areas of the country hit hard in the crisis and where the Justice Department found widespread evidence of discrimination.

Did Wells admit wrongdoing?

Nope. The bank still denies the DOJ’s claims, saying it settled to avoid a long legal battle.

Key Reads

The Washington Post recently detailed the lasting impact on black and Hispanic communities of credit scars from subprime fiascos. We’ve also reported on complaints that Wells Fargo has fallen short in its upkeep of foreclosed homes in black and Hispanic neighborhoods.

Misleading Customers on Credit Card Services

The bank

Capital One

The Details

On July 18th, Capital One settled with the Consumer Financial Protection Bureau and the OCC for pressuring customers to buy unnecessary and costly account features and misleading them about benefits, requirement, and eligibility.

Who’s been hurt?

The settlement estimates some two million Capital One credit card holders were affected.
The settlement

$210 million. $150 million will be returned to harmed customers, for a payment of about $70 each.

Did the bank admit wrongdoing?

Kinda, sorta. In a statement, the bank blamed third-party vendors for the swindling, but apologized and said it was accountable for its contractors’ actions.

Wrongful Foreclosure on Members of the Military

The bank

Capital One

The details

On July 26th, Capital One settled with the Justice Department over allegations that the bank violated the Servicemembers Civil Relief Act, which gives active-duty military a temporary break from some debts, and puts a cap on interest rates they can be charged. Capital One violated those provisions, resulting in wrongful foreclosures and overcharges.

Who’s been hurt

Roughly 4,000 members of the military with Capital One credit cards, loans, or other products between June 2005 and November 2011.

The settlement

$12 million, to be paid to harmed servicemembers.

What’s the bank say?

Capital One says it cooperated with the Justice Department’s investigation, and has already taken some extra steps to offer bonus benefits to the military.

Key read

Similar violations may be flying under the radar. A Government Accountability Office report released in July faulted regulators for not watching banks more closely. The report found that the government reviewed less than half of U.S. banks for compliance, and relied on banks to identify which loans actually involved members of the military.

Doing Business with Iran

The banks

Standard Chartered, ING Bank

The details

In June, ING Bank settled with the Treasury for violating sanctions against Cuba, Iran, and other countries. In more than 20,000 transactions—totaling $1.6 billion—ING removed or disguised references to embargoed countries in order to skirt sanctions.

In what seems to be a much larger scale case, New York state filed an order on August 6th, alleging that Standard Chartered had also flouted Treasury sanctions by allowing as much as $250 billion worth of transactions from Iranian clients to pass through its New York office, and like ING, taking deliberate steps to obscure the country of origin. Most of the action happened in “U-Turn transactions,” which involved Iran and passed through the U.S. but started and ended in non-U.S. banks. They were legal until 2008. New York alleges the bank didn’t keep accurate records and sought to mislead regulators about even legal trades.

Settlements

$619 million from ING to the Justice Department and the Manhattan District Attorney (who were investigating alongside the Treasury).

$340 million from Standard Charted to New York, in a settlement announced August 14th. Standard Chartered will keep its license to operate in New York, which the state's financial regulator had threatened to revoke.

What does Standard Chartered say?

When New York first filed its order, the bank responded that only $14 million of the $250 billion in transactions actually violated sanctions. Standard Chartered’s announcement on the settlement last week doesn’t mention that figure (the bank did not respond to our requests for comment). The precise wording of the settlement is still being worked out, but New York says that Standard Chartered agreed that the “conduct at issue” involved $250 billion. (The New York Times explained the gray area behind the huge disparity in these numbers).

More to come?

Standard Chartered could still see fines from other regulators, though the Treasury, Fed, and Justice Department were reportedly taken by surprise by New York’s order, as they hadn’t yet determined the scope of wrongdoing. Standard Chartered had previously disclosed that they were cooperating with inquiries from those and other agencies

They’re not the only bank in hot water here. Remember HSBC’s money-laundering lapses? The Senate’s report also alleged a pattern of evading sanctions, and the bank says it is still under investigation by the Treasury.