MOSCOW, November 5 (RIA Novosti) — The US Department of Justice’s criminal investigation into a banking and financial giant JPMorgan Chase (JPM) over its foreign currency trading has gained momentum as the bank now needs as much as $5.9 billion in legal proceedings costs.
When it comes to confidence in US financial market, this is positive news, according to Thomas Jeitschko, a professor of economics at Michigan State University. “I would venture a guess that in this particular case the net effect may be positive in restoring some lost confidence in financial markets in general and in the Forex market in particular — even though the problem is alleged to have been widespread,” Jeitschko told RIA Novosti.
Jeitschko explained that at the heart of the matter are allegations of foreign currency exchange manipulations that involve many of the large internationally active banks.
“It is claimed that they may have manipulated rates to benefit themselves while hurting clients. The market for currencies is one of the largest markets by volume traded, and yet it has comparatively little regulatory oversight, so this is a wide-ranging investigation that does not just involve the DOJ,” the professor said.
Another US expert, associate professor at Georgetown University James Angel, shares Jeitschko's view on JPM's alleged manipulations. "While they should be presumed innocent until proven guilty, it appears that the traders at JPM were conspiring with traders at other large banks to manipulate currency rates, and that the supervisors at JPM didn't detect or prevent the misdeeds."
The probe potentially involves most large players in the industry in the United States and Europe. So, European investigators and regulatory agencies are also conducting investigations. "There were stories last month about the investigation coming from the UK," Angel told RIA Novosti.
INVESTIGATION CONSEQUENCES AND OUTCOMES
“The immediate consequences of the investigation are that the targeted banks must anticipate higher legal expenses than they otherwise would,” Thomas Jeitschko told RIA Novosti.
According to the expert, "all large banks affected have been setting aside money in connection with the investigation to cover legal expenses."
"Setting aside such money has no automatic implications of guilt — it is a prudent practice that allows the firm to cover anticipated costs associated with the investigation, which may but need not include settlement costs or fines. It is prudent to have the reserves,” Jeitschko added.
James Angel, in his turn, touched the issue of emerging currencies and their vulnerability to such manipulations.
"It is likely that smaller currencies such as some emerging markets are the ones most easily manipulated. It would be hard for anyone to manipulate dollar-euro or dollar-pound rates because there is so much currency trading in those currencies," the professor told RIA Novosti.
The two potential outcomes of such an investigation include raising doubts among the public and clients, or raising confidence in the system, because the investigation working is part of the oversight that keeps confidence that bad apples are ferreted out, as Jeitschko explained.
JPMorgan Chase is a multinational banking and financial services holding company with assets estimated at a total of $2.5 trillion. Throughout its 14-year-long history, the company has stood accused of mortgage overcharging, alleged manipulations of the energy market, sanctions violations and obstruction of justice by its employees.