A view of the exterior of the Barclays U.S. Corporate headquarters in the Manhattan borough of New York City, May 20, 2015.MIKE SEGAR/Reuters
Barclays PLC and Royal Bank of Scotland Group PLC, which were fined $3-billion (U.S.) on Wednesday for rigging currency markets, will have to set aside another 7 billion pounds ($11-billion) for misconduct within two years, JPMorgan Chase & Co. said.
Barclays faces a further 900 million pounds for alleged manipulation of the foreign-exchange market, particularly a U.S. probe into electronic trading not covered by the recent settlements, JPMorgan said in a note Thursday. RBS's biggest potential cost is for mishandling U.S. retail mortgage-backed securities, which could be an extra 3.1 billion pounds.
While "uncertainty around litigation costs and hence capital at Barclays has been materially reduced," the bank's "conduct issues still warrant caution," Raul Sinha, an analyst at JPMorgan in London wrote in the report. "For RBS, our principal concern remains U.S. RMBS litigation which is unlikely to be resolved until early 2016."
Barclays and RBS were among six banks fined a combined $5.8-billion on Wednesday for rigging currencies, ending two years of global investigations into what U.S. Attorney General Loretta Lynch called a "brazen display of collusion" to game markets. Barclays paid a total of 1.5 billion pounds to five authorities and RBS $669-million.
JPMorgan also predicts both banks will top up reserves to compensate customers for payment protection insurance they didn't want or need, adding to the 23 billion pounds the scandal has already cost British lenders. Barclays will make another 600 million pounds of provisions and RBS 400 million pounds, Sinha said. He has an overweight rating on Barclays's stock and is neutral on RBS.
RBS may set aside an additional 700 million pounds relating to foreign-exchange provisions and 600 million pounds for other litigation, according to JPMorgan. The Edinburgh-based lender has already set aside 2.1 billion pounds to cover the cost of Federal Housing Finance Agency accusations it sold faulty mortgage bonds to Fannie Mae and Freddie Mac from 2005 to 2007, according to JPMorgan. That would take the total to 5.2 billion pounds.
Other provisions may cost Barclays 800 million pounds, the analyst estimates.