Bank Stock Roundup: Spurt In Regulatory Probes On Banks; BofA, JPMorgan In Focus

The banking industry has faced various regulatory probes in the last five trading days from numerous authorities including the U.S. Department of Justice (“DOJ”). Though banks are resorting to resolution of legacy legal issues, there seems no end to these.

Most recently, after allegations of rigging interest rates and foreign currency markets, major global banks, including JPMorgan Chase & Co. (JPM - Analyst Report), are under scrutiny for their involvement in manipulating the precious metal market. Moreover, Bank of America Corp. (BAC - Analyst Report) was in focus for its efforts to resolve legal issues.

Further, the banking industry is increasingly pursuing restructuring measures with its services being more electronically inclined. Recently, JPMorgan announced shutting down around 300 bank branches over the next two years.

(Read the last Bank Stock Roundup for Feb 20, 2015)

Recap of the Week’s Most Important Developments:

1. 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 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 has been revamped last year, previously 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, Credit Suisse Group AG (CS - Snapshot Report), Barclays PLC (BCS - Analyst Report), Deutsche Bank AG (DB - Analyst Report), The Goldman Sachs Group, Inc. (GS –Analyst Report), The Bank of Nova Scotia (BNS), Societe Generale SA, Standard Bank Group Ltd. and UBS Group AG (UBS). (Read more: Banks Face Probe on Precious Metal Rigging)

2. BofA has settled its lawsuit related to Fontainebleau Las Vegas, LLC by agreeing to reimburse $300 million, as disclosed by the bank in its regulatory filing. This was one of the many probes and litigations worrying the company at present. BofA, which acted as the disbursement agent for a syndicate of lenders, provided $150 million in 2005 and $1.85 billion in 2007 to the $2.9 billion Fontainebleau project for construction financing. The project was envisioned to include over 3,800 rooms, a casino and a convention center along with restaurants as well as bars.

However, the project’s developer filed for bankruptcy in Jun 2009 laden with cost overruns, declining condominium sales and the bankruptcy of major lender Lehman Brothers in Sep 2008 that left the project incomplete. The unfinished resort was later sold to billionaire investor Carl Icahn through the bankruptcy court in 2010.