Bank of America Corp cut third-quarter earnings by US$400 million, wiping out the surprise profit it reported last month, as the firm braced for the end of probes into foreign-exchange dealings. US regulators faulted systems and controls for currency trading and called for fines and remedial actions in draft documents sent late last month, the firm said yesterday in a quarterly report. The lender posted a loss of US$232 million, or four cents a share, for the three months ended September 30.
Regulators in the UK and US are preparing to levy fines on at least a half dozen firms after probing allegations they manipulated the US$5.3 trillion-a-day currency market, people with knowledge of the situation have said. The reviews, including scrutiny of traders’ communications and how firms policed their activities, have prompted the world’s biggest banks to overhaul operations and bolster legal reserves.
“The attributes that make a strong currency trader is someone who’s aggressive and takes advantage of opportunities,” said Mark Williams, a former Federal Reserve bank examiner who’s now a lecturer at Boston University’s School of Management. “If controls are weak or not enforced properly, they’ll take advantage of weaknesses in the system.”
The probes have meant another legal headache for Bank of America Chief Executive Officer Brian T Moynihan, 55, after he led the firm through more than US$70 billion in costs tied to the takeovers of Countrywide Financial Corp and Merrill Lynch and Company. Those cases culminated in a record US$16.7 billion settlement of government mortgage probes in August. He has presided over five quarterly losses since taking the top job in 2010.
Authorities on three continents have been looking into allegations that dealers at the biggest banks traded ahead of clients and colluded to rig the WM/Reuters rate, a benchmark used by pension funds and money managers to determine what they pay for foreign currencies. More than 25 traders have been fired, suspended or put on leave after the allegations became public last year, and disclosures from banks in the past two weeks show a wave of settlements is approaching.
Bank of America said yesterday that talks accelerated after it reported quarterly results in mid-October. The firm is in advanced discussions with the Fed and US Comptroller of the Currency, a person briefed on the matter said, requesting anonymity because the negotiations are private. The company is co-operating with investigations and inquiries. (Bloomberg)