This Big Bank Probe Is a Question of Values

The ongoing probe of bank’s manipulation of the London interbank offered rate, or LIBOR, is likely to be another legal concern for money center banks in 2014.

Jan 20, 2014 at 2:00PM

Tradingh

The ongoing probe of banks' manipulation of the London interbank offered rate, or LIBOR, as well as other benchmark rates is likely to be another legal concern for banks in 2014. As has been widely reported, this probe has already resulted in a number of big payouts from global banks.

In 2012, for example, Barclays forked over about $450 million to regulators in the U.S., the U.K., and the European Union.

Moreover, landmark settlements with UBS and the Royal Bank of Scotland also required foreign subsidiaries to cop guilty pleas to charges of wire fraud.

What rate manipulation probes mean for U.S. Banks
The coming year will inevitably see more cases closer to home. The extent to which the Big Four U.S. banks might be liable is unclear, as is the possibility that executives will be forced to walk the plank, as was the case with Barclays. But at the end of the day, potential settlements might be a drag on earnings.

Floor

Last Decemeber, Citigroup (NYSE:C) and JPMorgan Chase (NYSE:JPM) were hit first when the European Commission handed down penalties in connection with its probe into rate collusion of Euribor and Japanese interest rates.

Citigroup ponied up a $95 million fine for its participation in the Japanese scheme, but the bank was also granted full immunity for one of the violations for cooperating with authorities and avoided an additional $74 million penalty.

JPMorgan's payout was $108 million in connection with charges of manipulation of the Japanese benchmark rate; however, the bank maintains its innocence in the Euribor probe. More importantly, the bank said in a statement that the settlement does not mean JPMorgan was involved in the LIBOR rate manipulation issue.

A question of values
These settlements are relatively small matters from a dollars and cents perspective, given the size of the banks' balance sheets. Moreover, the big U.S. banks have returned to profitability and remain strong from a fundamental perspective.

But the rate manipulation cases raise questions of ethics. To paraphrase the late economist Milton Friedman, the business of business is business. And the primary objective of business is to generate profits, which support earnings growth and shareholder value.

Stocks

Source: Katrina.Tuliao.

Obviously, the banks left standing after the financial crisis have a track record of being capable of achieving both of these ends. But for investors who factor other values into their fundamental calculations, the LIBOR probe has far-reaching implications for the broader economy, as borrowing rates have a direct impact on small business lending, consumer finance, and the mortgage markets.

But there is another side to the story. When news of this matter first surfaced, it was also revealed the regulators in the U.S., the U.K. and the EU had long been aware of rate rigging by big banks here and abroad. 

Moreover, there have long been a number of laws and regulations in place designed to keep tabs on the capital markets, and an argument can be made that regulators at home and abroad failed to live up to their charge leading into the financial crisis of 2008.

At the surface, the business of business is to make money, but the rate manipulation matters are a concern that affects consumers and investors who also place a value on ethical considerations. Ultimately, free market capitalism is still the best path to prosperity, and prosperity is best protected by the rule of law.

Finding the strongest of the pack
Many investors are terrified of investing in big banking stocks after the crash, but the sector has one notable stand-out. In a sea of mismanaged and dangerous peers, it rises above as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's new report. It's free, so click here to access it now.

Kyle Colona has no position in any stocks mentioned. The Motley Fool owns shares of Citigroup and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers