Banks Face Probe on Precious Metal Rigging - Analyst Blog

After allegations of rigging interest rates and foreign currency markets, major global banks now face probe for their involvement in manipulating precious metal market. As per a Wall Street Journal report, at least 10 global banks are being investigated by the U.S. Department of Justice ("DOJ") and the Commodity Futures Trading Commission ("CFTC") for allegedly rigging prices of precious metals like gold, silver, platinum and palladium.

The DOJ is examining the price-setting process for these metals in London, while the CFTC has initiated a civil probe. The benchmark for these precious metals is used by miners, traders, jewelers, central banks and financial institutions to trade and value them. Though the process of setting prices for precious metals have been revamped last year, before that prices were set using a century-old method of one or two conference calls per day between groups of bankers.

Banks under scrutiny include HSBC Holdings plc ( HSBC ), JPMorgan Chase & Co. ( JPM ), Credit Suisse Group AG ( CS ), Barclays PLC ( BCS ), Deutsche Bank AG ( DB ), The Goldman Sachs Group, Inc. ( GS ), The Bank of Nova Scotia ( BNS ), SociétéGénérale SA, Standard Bank Group Ltd. and UBS AG ( UBS ).

Of these, HSBC revealed in the 2014 annual report that both the regulators had issued subpoenas seeking documents on its precious metals trading operations. The company is cooperating in the investigations.

Notably, the European regulators had dropped similar probe against global banks after failing to find evidences. However, in 2014, the U.K. Financial Conduct Authority had fined Barclays £26 million ($40.2 million) for negligent controls, after one of its traders allegedly rigged the gold price at the expense of a client.

Further, many banks are facing potential class-action lawsuits filed by investors, traders and other plaintiffs in a federal court in Manhattan over the above-mentioned charges. The plaintiffs seek damages for losses suffered owing to alleged rigging of gold price and derivatives.

We believe that banks may have to dole out millions of dollars to settle these accusations, similar to settlement deals regarding alleged manipulation of other benchmark rates like interest rates and FX. Such setbacks could impact the financials and hamper growth of banks.

Nevertheless, banks, for time immemorial, have been using all methods (legal or illegal) for earning profits at the expense of others. Despite these business misconducts, they hardly admit to any wrongdoing. We cannot help but feel that such attitude will lead to an erosion of goodwill in the long run.

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HSBC HOLDINGS (HSBC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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