By Greg Farrell @gregfarrel
Credit Suisse AG will pay $135 million to resolve currency-manipulation allegations by New York’s banking regulator, the latest echo from authorities’ long-running scrutiny of foreign-currency trading at big banks.
Traders at the Zurich-based bank, prodded by executives in some cases, shared information about clients’ currency orders, talked to traders from other banks and in some instances front-ran customer orders in an effort to boost the bank’s own profits, New York’s Department of Financial Services said as it announced a settlement on Monday.
The bank also used software on its electronic trading platform to cancel out customers’ trades that stood to be costly for the bank, according to a consent order describing conduct from 2008 to 2015.
Credit Suisse traders at the time used electronic chat rooms to talk with a small knot of traders who’ve been accused of manipulating currency prices and referred to themselves as “The Cartel.”
Three of those traders, formerly of JPMorgan Chase & Co., Barclays Plc and Citigroup Inc., await trial in Manhattan over accusations that they shared information and attempted to fix currencies. Trading by Cartel members was also at the core of a 2015 settlement with the U.S. Justice Department in which six banks pleaded guilty and agreed to pay $5.8 billion.
The New York regulator’s settlement with Credit Suisse grew out of its look into electronic trading platforms at large banks chartered in New York, including Deutsche Bank AG, Societe Generale SA, Goldman Sachs Group Inc. and BNP Paribas SA. The DFS reached a $485 million settlement with Barclays in late 2015. Other investigations are still active.
Credit Suisse, as part of its New York settlement, agreed to hire an outside consultant to review its practices. It will take a pre-tax charge of about $135 million in its fourth quarter.
While the bank signed off on DFS’s consent order, it neither admitted nor denied wrongdoing. “Credit Suisse does not admit to any findings of fact and the resolution does not involve any fraud-based violations,” the bank said in a written statement, saying it was pleased to put the matter behind it.
According to the DFS, Credit Suisse’s traders frequently tried to trade ahead of big foreign-exchange transactions by their clients, a practice known as front-running. When SABMiller Holdings Ltd. announced a bid to acquire the Foster’s Group in 2011, two Credit Suisse traders communicated with other traders, including a member of the Cartel, discussing ways to trade ahead of the deal, which would likely require conversions of British pounds and Australian dollars, the regulator said.
Credit Suisse’s traders also shared confidential information about foreign exchange orders placed by a customer of another bank they referred to as “Satan.” By sharing this customer’s orders or positions, they helped the bank’s traders maximize their profits, the DFS said.
Another scheme was described as “building ammo,” which meant that traders at Credit Suisse and other banks agreed to designate one of their own to handle all of the banks’ forex trades around a fixing window. This way, the designated trader could exercise outsize market power and swing certain currency prices in a particular direction.
Front-running was discussed among traders on the bank’s electronic platform, known as eFX. In early 2012, one executive from the eFX platform wrote that it was a priority to “Improve order front running,” according to the DFS.
“Certain Credit Suisse executives in the bank’s foreign-exchange unit deliberately fostered a corrupt culture that failed to implement effective controls in its foreign exchange trading business,” DFS superintendent Maria Vullo said in a statement.
The consent order also describes how the bank used its trading platform’s “last look” function -- a feature that typically lets banks pull out of trades as a defense against sophisticated currency speculators -- to abort legitimate currency trades from regular customers when those trades might go against the bank.
When those trades were rejected by the bank, customers were notified only that “An error occurred -- please contact Credit Suisse.” The customers weren’t told that their trades were rejected because they would have been profitable for the bank, according to the New York regulator.
It wasn’t clear whether the outside consultant to review practices on the bank’s foreign exchange desk had been chosen.
The bank already has an outside monitor, Neil Barofsky of Jenner & Block LLP, who was appointed in 2014 by Vullo’s predecessor, Benjamin Lawsky, after the bank admitted to helping Americans evade taxes. Earlier this year, the U.S. Justice Department named Barofsky to serve as the monitor for its settlement with Credit Suisse over the bank’s sale of residential mortgage-backed securities.