Fines & Penalties Monitor: July 2017

The total amount of fines, penalties and settlements paid out by the 18 largest institutions headquartered in the U.S. and Europe almost tripled in the month of July.  Seven banks paid out a combined $6.0B, increasing our total from $3.5B to $9.5B.

Royal Bank of Scotland Group Plc. (RBS) incurred the largest settlement of the month, paying out $5.5B to the Federal Housing Finance Agency (FHFA) to settle a probe into its sale of mortgage-backed securities to Fannie Mae and Freddie Mac in the run up to the financial crisis. This fine is the largest incurred during the first seven months of 2017 and currently accounts for more than half of the fines, penalties, and settlements total. RBS said that it had already set aside funds to cover most of the cost of the settlement.  In settling, RBS becomes the 17th bank to strike a deal with the FHFA over the sale of subprime mortgages to the GSEs.

Second, Wells Fargo was hit with another consumer scandal and will give $80.0MM in refunds to more than 570,000 auto loan customers who were charged for auto insurance without their knowledge.  The bank said it will begin sending letters and refund checks to customers, most of whom already had insurance of their own and some of which had their cars repossessed, in part, because of the practice.

The remainder of the fines this month were related to foreign exchange and rate benchmark manipulation. First, BNP Paribas SA agreed to pay $246.0MM to settle Federal Reserve allegations that the bank failed to keep its currency traders from using electronic chatrooms to manipulate prices.  The Fed ordered the Paris-based lender to improve its oversight and internal controls for foreign-exchange trading.

Then, Deutsche Bank AG and JPMorgan Chase & Co. agreed to pay $77.0MM and $71.0MM, respectively, to resolve claims that they conspired to manipulate the benchmark yen Libor rate and said they will cooperate with investors suing other banks.  Neither company admitted wrongdoing under the agreements, which must still be approved by a judge.

Finally, Morgan Stanley and Standard Chartered agreed to pay a combined $67.2MM to settle U.S. litigation accusing them of rigging prices in the foreign exchange market. Both banks denied wrongdoing.

As we enter August, the total fines, penalties and settlements paid out by our bank group remains markedly lower than last year.  By the end of July 2016, settlements had reached $16.0B, with Goldman Sachs paying about one third of that total.  In contrast, in 2017, Goldman Sachs has not paid a single fine of $50.0MM or more this year.  Be sure to check in next month as we continue to cover the largest banking infractions.