Five banks have been hit with record fines for rigging currency exchange rates, totalling $5.7bn (£3.6bn), including our very own Barclays (LSE: BARC)(NYSE: BCS.US) and Royal Bank of Scotland (LSE: RBS)(NYSE: RBS.US). In fact, Barclays faces the biggest penalty at $2.4bn, as it failed to settle investigations last November along with the other four.
The news emerged yesterday after the UK markets closed, so what was the morning response? Well, the shares opened as if nothing had happened, with Barclays up a penny as I write to 272.5p and RBS unchanged at 355p!
Cheating cartel
The investigation concluded that a private chat room was used regularly between 2007 and 2012, where currency traders from the banks met and manipulated exchange rates, financially harming large numbers of investors around the world including many of their own clients. By adjusting their own currency positions in collaboration with each other, the cartel of traders were able to cheat their way to profits for themselves at the time of each daily exchange rate fix.
If you think that stinks of the very worst of banking greed, you’ll get no disagreement from me. But my biggest surprise is that nobody seems to care much, judging by the way the market has shrugged it off this morning. It’s not as if $2.4bn is insignificant to Barclays — equivalent to £1.5bn, it amounts to 23% of the £6.4bn in pre-tax profit forecast for this year.
Small change?
The penalty for RBS is smaller at $669m, though that’s actually around a third of the £1.3bn pre-tax expected this year — but I guess in the long run, it’s small change compared to the riches that the world of banking will generate.
Barclays has sacked eight employees who were involved in the scandal and CEO Antony Jenkins has said that that “some individuals have once more brought our company and industry into disrepute“, while RBS chief Ross McEwan talks of “how badly this bank lost its way and how important it is for us to regain trust“. Putting aside the irony of bringing a thoroughly disreputable industry into disrepute, I don’t think that goes far enough — those responsible should face criminal prosecution just like the common or garden thieves they are.
But with my investor head on, I can only marvel at the resilience of the banking sector. There are other ongoing investigations yet to be concluded, and the possibility of further fines is very real. Yet it seems that investing in the business of greed itself just can’t go wrong right now.
Still cheap
On that score, I have to say I think Barclays shares are cheap on a forward P/E of under 10 based on 2016 forecasts and with a predicted dividend yield of 4.1%. RBS I find considerably less attractive on a higher valuation than, and at least a year behind, fellow taxpayer-rescued Lloyds Banking Group.
