Bank of England predicts lower inflation; banks fined for forex rigging – live updates
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Version 0 of 1. 5.34pm GMT17:34 European shares lose ground Shares fell back after the gains of the past few days, with the financial sector under pressure after regulators fined five banks for manipulating foreign exchange markets. Retailers were unwanted following J. Sainsbury outlining plans for more price cuts, while utilities fell after disappointing updates from Italy’s Enel and Germany’s E.ON. Meanwhile the pound fell against the dollar, down around 0.8% on the day to $1.5795 as the Bank of England’s latest comments suggested there would be no rise in UK interest rates in the immediate future, probably not before May’s general election. The final scores showed: On Wall Street the Dow Jones Industrial Average is currently down 4.91 points or 0.03%. On that note, it’s time to close up for the evening. Thanks for all your comments, and we’ll be back again tomorrow. 4.41pm GMT16:41 Over in Greece political tensions are rising as the opposition once again steps up calls for early elections amid mounting controversy over Troika demands. Helena Smith reports: Racheting up the pressure on a government that is feeling increasingly wobbly in power, the radical left main opposition Syriza leader, Alexis Tsipras, said the only exit for debt-stricken Greece was fresh elections. “[We have] to hold elections of deliverance and change so that the people can decide which strategy Greece should follow to get out of the crisis,” the politician told his parliamentary group today. Syriza has been steadfastly leading polls and would likely emerge as the first party if snap elections were held in the event that the government fails to muster enough support to replace the outgoing president in February. The leftist spoke as pressure from international creditors mounted on Greece’s coalition government. Short of bringing in radical reforms – “actions” that include re-negotiating the pension system and public sector jobs – foreign lenders at the EU, ECB and IMF have said, bluntly, they will not support Athens’ plans to exit its bailout programme by the end of the year. “A Syriza government will accept neither the prior actions nor the actions that are being presented as a fait accompli,” said Tsipras hinting at the head-on confrontation that may well be looming with creditors. The bleak view is not just confined to Greece. In Brussels, Greek MEPs representing the ruling New Democracy party, also believe the government is losing ground because of its failure to enforce reforms. “The government is not implementing all the measures it has agreed to,” the MEP Georgios Kyrtsos told me in the Belgian capital. “Greece cannot expect to restructure its debt by 30% or 50% unless it moves faster [on reforms] and a rescheduling of the debt is absolutely necessary,” said Kyrtsos, a member of the EU’s Committee on Economic and Monetary Affairs. “At the same time the opposition is living in its own world without a viable, alternative policy to offer. The Greek economy is in great difficulty.” Updated at 4.45pm GMT 4.21pm GMT16:21 Crude oil prices continue to slide, with Brent down more than 1% at $80.73 a barrel amid talk of a large increase in US stocks last week. Meanwhile Saudi Arabia has said it wants stable oil markets and prices, and suggestions of an oil price war was just a misunderstanding. Later this month - 27 November - comes a key Opec meeting when the oil producers have to decide whether to cut output to combat the recent plunge in prices. 3.10pm GMT15:10 My colleague Larry Elliott agrees with the last part of J.P. Morgan’s assessment and says a rate rise is unlikely to come before next year’s election. He writes: The economy is humming along. Growth will be strong this year and next. Wages have started to rise more rapidly than prices. Interest rates have been at 0.5% for more than five years. So when is the first increase in borrowing costs coming? Not yet. That was the clear message from the governor of the Bank of England, Mark Carney, as he opened his Inflation Report press conference with a nod to Karl Marx. “A spectre is now haunting Europe,” the governor said. “The spectre of economic stagnation.” The Bank thinks the weakness of the eurozone will affect growth in the UK, but not by much. Exports will take a bit of a hit and investment is expected to soften slightly, but the outlook is still rosy. ...But while the Bank has only slightly pared back its growth forecasts since its last Inflation Report in August, the same can’t be said of inflation. Threadneedle Street did not expect inflation to come down with such a bump and expects a further moderation in the months to come. CPI inflation is forecast to be 1% in the first half of next year, with a better-than-even chance that it will slip below 1% for the first time since 2002. That would require Carney to write a letter to the chancellor explaining why inflation was more than a percentage point away from its 2% target and what – if anything – the Bank’s monetary policy committee intended to do about it. The chances of Carney raising rates at the same time as he is writing letters explaining away low inflation look pretty slim. That’s why George Osborne can assume that there will be no rate rise this side of the election. Full story here: The economic news may be good, but interest rates will not rise yet 3.00pm GMT15:00 Despite today’s dovish comments on interest rates from the Bank of England, the timing of the next rise is still uncertain, said Kerry Craig, global market strategist at J.P. Morgan Asset Management: Markets interpreted the tone of today’s report and associated press conference as dovish given weaker inflation forecasts and Mark Carney’s downbeat view of the global economy outside of the US. This release broadly confirmed markets expectations that interest rates could be on hold until October 2015 – but it’s worth remembering how much the expected timetable for rates has changed in the past six months. At the Mansion House speech back in June, Mark Carney warned markets that rates might well rise faster than what was then expected – which was interpreted by many as suggesting a rate rise before the end of 2014. Since then weaker global growth outlook and sharp fall in global inflationary pressures have pushed the expected date of the first rate rise by nearly 12 months. We have also seen a similar shift in the US. Investors should prepare for the first rate rise in the UK. We believe this will happen in 2015 and could still happen before the first rate rise in the US if UK productivity does not pick up. But the timing has slipped significantly in both countries and remains highly data dependent. We don’t believe the Monetary Policy Committee would hesitate to raise interest rates earlier than expected if the economic data seems to warrant it. However, the lack of inflationary pressure means that there is now scope for rates to remain at historic lows until the second half of 2015. 2.53pm GMT14:53 Jean-Claude Juncker, the head of the EU executive, has said he would lead a European campaign against tax avoidance and evasion, after dominating Luxembourg politics for 20 years during which the Grand Duchy got rich on the most systematic tax avoidance practices known in Europe, writes Ian Traynor. Less than a fortnight into his five-year term as the new president of the European commission, Juncker broke his silence on last week’s revelations in The Guardian and other newspapers showing how the Luxembourg tax authorities exploited complex loopholes to enable multinationals to minimise their tax exposure, depriving other EU countries of tens of billions in revenue. Juncker said he had just ordered the drafting of a new EU directive on automatic exchange of information on national tax rulings between member states, and argued he had supported tax harmonisation in the EU since 1991. “This commission will fight tax evasion and tax avoidance,” he declared. “This is not just words. This is very much the intention.” Full story here: Jean-Claude Juncker: I will lead EU campaign against tax avoidance 2.39pm GMT14:39 The European Central Bank is committed to taking further unconvential measures to boost the struggling eurozone economy, the bank’s president Mario Draghi has reiterated. There had been talk that some ECB members were unhappy with Draghi’s style and would, like the Germans, resist what would effectively be full blown quantitative easing. But after last week’s ECB meeting, Draghi brushed aside such speculation, and speaking in Rome he ran through what the bank has already done - cutting interest rates, activating €1tn of credit lines for the banking system, the “now famous” outright monetary transaction programme, the three measures of unconventionalo monetary policy including purchasing covered bonds - before adding: All these policy actions, accompanied by the expected maintenance of interest rates at their current level for a long period of time and an ongoing expansion of the ECB’s balance sheet, together with the commitment by the Governing Council to take further unconventional policy actions should medium-term inflation expectations worsen or if the measures already decided on prove to be insufficient, has led to an unprecedented degree of monetary accommodation. Today, all the current and expected market interest rates over all horizons are lower than they have ever been, and lower than they are today in the United States. He also called again for further action beyond monetary and fiscal policy: A fiscal policy which, in compliance with the existing rules, may see more investment and lower taxes, together with an accommodative monetary policy are not enough to generate a revival of strong and sustainable growth without the necessary structural reforms in product and labour markets. Increased competition, the completion of Europe’s single market, measures which would allow unemployed workers to quickly find a new job, thus reducing the period of unemployment, measures which would raise the level of specialisation and adapt it to the demand have long been on the economic policy agenda of many euro area countries: may the thought now make way for action. Full speech here: The economic policy of Federico Caffè in our times 2.11pm GMT14:11 The FX scandal underlines why bankers’ bonuses should be subject to hefty clawbacks over many years, argues Andrew Tyrie MP, who heads up the UK parliament’s Treasury Committee. Tyrie says: “This settlement also makes the strongest possible case that market participants, who are in a position seriously to harm their firm, customers or markets, should be required to defer some remuneration for long periods. It is essential to ensure that such market participants are put on contracts that leave ‘skin in the game’, some of it for long periods. “With or without an FCA regulatory intervention, they need to know that their firms may withdraw deferred remuneration when they identify involvement in misconduct or failure to report it. This was a central proposal of the Parliamentary Commission on Banking Standards. Regulators should not be swayed by complaints from banks about long deferral. Tyrie also reveals that his committee will start examining the situation next week: “The settlement is part of a much needed clean-up operation, which includes the Fair and Effective Markets Review. “The Treasury Committee will start to take evidence on this during a session with Dr Shafik, Deputy Governor of the Bank of England, on the Fair and Effective Markets Review next week.” And with that, I’m handing over to my colleague Nick Fletcher. Updated at 4.44pm GMT 1.33pm GMT13:33 If you’re trying to get up to speed on the currency rate-fixing scandal, check out our round-up of the transcripts between FX-rigging traders. ‘Nice work gents’: FCA transcripts show forex traders’ back-slapping culture It explains how traders were able to conspire to target the 4pm fix, and how they congratulated each other for doing so.... 1.25pm GMT13:25 Over in America, traders are waking up to the news that JPMorgan and Citigroup have been fined for allowing their traders to manipulate the forex market. And the revelation that some traders tried to profit by triggering their own clients stop loss contracts has send shivers through Wall Street [I covered this earlier in the blog] Wow, this is serious! @nanexllc: FCA said JPM engaged in triggering client stop orders in FOREX. pic.twitter.com/e5GozbWkJj 1.08pm GMT13:08 We’re running a poll, asking whether our readers think fining banks actually forces them to act better: Vote here: Will banking fines be enough to change banker behaviour? Updated at 1.08pm GMT 1.03pm GMT13:03 Back on the foreign exchange rigging scandal....and some lawyers are asking whether the whole affair has been wrapped up too quickly. Brian Spiro, a defence lawyer at BCL Burton Copeland, suggests that the Financial Conduct Authority may have acted too speedily. He points out that the FCA relied on information gathered by the banks and their lawyers for some of its findings. Spiro told the Financial Times that: “If they can sub it out, get a speedy result and bring money into the coffers, it’s tempting to ask what more could you want?”. “But some, myself included, ask: where does due process enter the equation? Do the enforcement agencies now operate within an environment solely governed by budget and pragmatism?” Before buying Osbo hype on banks read FT on how FCA allowed banks to investigate their own Forex fiddles http://t.co/syBYrO28TJ If you watched/followed this morning’s FCA’s press conference, you’ll know that enforcement chief Tracey McDermott has denied being too soft on the banks. The FCA has spent “45 man years on this investigation”, she said. And if you missed it, highlights start at 9am. 12.50pm GMT12:50 Every time I stand outside RBS to report some major scandal I wonder if it'll be the last time and one day it will all go right. Let's hope! 12.47pm GMT12:47 Caxton FX: pound likely to weaken further Mark Carney may have reminded us that he has raised interest rates (when at the Bank of Canada), but foreign exchange traders still saw today’s performance as dovish. The pound has lost nearly a cent against the US dollar today, down 0.5% to $1.583, since the BoE signalled that it might not raise interest rates until next autumn. Nicholas Ebisch, currency analyst for Caxton FX, predicts that sterling will continue to weaken: The Bank of England’s inflation report which was released today was more dovish than expected, which lead to across the board sterling weakness. It was not drastically dovish, meaning that there was only slight weakening of the pound, but the topics of discussion were mainly on the risks presently facing the UK economy. Central to the conversation is the concern that inflation has fallen further below the target of 2% from the Monetary Policy Committee, growth concerns in the neighbouring Eurozone, the weakness of commodity prices, and a slowdown in global growth. The overall message was that forward guidance policies will continue to guide the decision of the Bank of England in regard to a next interest rate rise, and if there is an interest rate rise, it will be sustained low interest rates for a long period of time. Market participants were halfway expecting a firmer commitment from the Bank of England in regard to the timing of the next interest rate rise, but the English central bank is playing it safe, as inflation is still low and there are a number of risks going forward. In light of these developments, the pound is expected to weaken against the Dollar and a number of other currencies in the short term. 12.21pm GMT12:21 Is this the first time that a Bank of England governor has alluded to The Communist Manifesto? Mark Carney’s statement on the quarterly inflation report began with the warning that: A spectre is now haunting Europe – the spectre of economic stagnation, with growth disappointing again and confidence falling back. Which sounds awfully like Marx and Engels: A spectre is haunting Europe — the spectre of communism. All the powers of old Europe have entered into a holy alliance to exorcise this spectre: Pope and Tsar, Metternich and Guizot, French Radicals and German police-spies. BoE's Carney reading Communist Manifesto?? Says "spectre is now haunting Europe – the spectre of economic stagnation" http://t.co/wmT8CrLQIx Updated at 12.24pm GMT 12.06pm GMT12:06 Here’s a handy summary of how the Bank of England’s forecasts have changed in today’s quarterly inflation report, from Rob Wood of Berenberg Bank: 11.38am GMT11:38 And finally, Mark Carney was asked whether he is “offended” by suggestions that he’s refusing to raise interest rates low until after the next election as a favour to George Osborne. The governor doesn’t appear offended, and explains that the bank sets policy to achieve the inflation target. 11.36am GMT11:36 Mark Carney rejects 'helicopter money' plan Does Mark Carney have any sympathy with Lord Turner’s suggestion yesterday (in the FT) that the Bank of England should print more money to finance a larger government deficit to stimulate growth? No, the governor replies. I cannot think of any circumstances where a central bank in an advanced economy should do this, and engage in “helicopter money”, Carney replies. He says that the Bank of England plans to unwind its quantitative easing programme eventually, which means it needs an valuable asset to sell. [this is the £375bn of government debt the BoE has bought in recent years to expand the monetary supply] Simply monetising the national debt would undermine that process. And it would also remove any discipline on fiscal policy -- as politicians could simply borrow recklessly and rely on their central bank to cover the cost. Carney concludes: I can’t see any circumstances where I would advocate it, even in the eurozone..... Never mind the Maastricht treaty [ruling out debt monetisation] ...just as [appropriate] policy. Carney says can never contemplate buying government debt and cancelling it; he is firmly opposed to "helicopter" drops of money on all of us Helicopter money = not an option / Carney Updated at 11.39am GMT 11.24am GMT11:24 How concerned are you about the damage that the Forex scandal will have on the reputation of the City? We are concerned, Mark Carney replies. Deputy governor Minouche Shafik takes up the issue, saying that the Bank’s review of the City will discover whether more needs to be done to improve conduct. Updated at 11.34am GMT 11.18am GMT11:18 Carney backs Draghi over fiscal policy Another question on the eurozone. Observer columnist Bill Keegan has reached page 23 of the quarterly inflation report, and a warning that: “Factors pushing down growth are likely to outweigh the European Central Bank’s efforts”. Does that mean you have some sympathy for Mario Draghi’s argument that fiscal policy must do more? Carney offers his fellow central banker some support. I would underline President Draghi’s comments at Jackson Hole, about the role that fiscal policy can play, he says. 11.15am GMT11:15 Carney had his weetabix this morning! 11.14am GMT11:14 Why did the Bank of England announce the firing of its chief FX dealer today? A good day to bury bad news? No, Carney replies. We followed employment law through the disciplinary procedure -- and it wasn’t related to Lord Grabiner’s inquiry into the FX issue. The two events “came together” but there’s nothing beyond that. Updated at 1.07pm GMT 11.12am GMT11:12 Why no mention of forward guidance, asks Sky’s Ed Conway. Is that because market participants see it as something of a joke? I have mentioned the word ‘guidance’, Mark Carney replies. Not my fault if you don’t pay attention. Read the transcript. <forward guidance is that UK interest rates won't rise until various economic conditions have been met -- it's fair to say it's evolved since August 2013 when it was a 7% unemployment rate> Carney says: our view of the global economy when we began forward guidance.. have become a mainstream view. Conway tried to interject. Carney slaps him down - “it’s not a discussion”. The forward guidance we have been giving (since August 2013) has been consistent, and proportionate. 11.08am GMT11:08 For those unaware of the "loon" question asked of Mark Carney the Canadian Dollar is called the loonie (believe it or not!) #BoE 11.06am GMT11:06 Very 'avian' press conference - also turning out to be quite funny. #BoE 11.06am GMT11:06 Are you a loon, governor? Question of the day, if not the year. Your colleague Minouche Shafik recently described herself as a wise owl, not a hawk or a dove. So what bird are you, governor? A loon, perhaps? Much guffawing in the press seats. I’m a pragmatist, Carney insist, after rebuking his colleagues for giggling (You found that funny? “I can’t believe you found that funny.”) 11.03am GMT11:03 The markets think you’re being dovish today, but would you like to say anything hawkish, governor? <corrected> I’m still the only G7 governor who has raised interest rates, Carney smiles. I’ve just not done it here. And I know how to hit an inflation target. [he’s referring to Some people - “some who have spoken this morning” - were calling for interest rates to rise this year. That wouldn’t have been a very bright call. And we’re trying to represent the views of the MPC today - sometimes I might disagree with my colleagues, but I’ll try to represent the committee. Carney: "I know how to raise interest rates". I heard that as a denial of this Daily Mash 'report' - http://t.co/Zv0JDzpp6e Updated at 11.59am GMT 11.00am GMT11:00 Here’s the full Inflation Report [pdf]: http://t.co/5xgumZoFsM 10.57am GMT10:57 How will Mark Carney explain the Bank of England’s failure to keep inflation to target if, as appears likely, it falls below 1%. I’ll decide what I write in my letter to the chancellor if, and when, I write it, Carney replies. At the moment, it’s more likely than not than I will write it, but it’s not certain. 10.57am GMT10:57 #BoE cuts UK forecasts as risks from euro area crystallize - says inflation could fall below 1% within months 10.55am GMT10:55 The Bank ‘looked through’ inflation when commodity prices were pushing prices up, so will they do the same now the falling oil price is pushing inflation down? Carney replies that yes, there is a symmetry, but not a “blind symmetry”. Which means... that at the time, the Bank was confident that the inflation spike was a temporary factor. This time, we don’t expect inflation to pick up soon - partly due to pressure from overseas (ie, the eurozone) We expect inflation to only get back to our 2% target at the end of three years, Carney points out. And as the Bank is at the “zero lower bound”, it has fewer options to loosen monetary policy to stimulate inflation (rates can hardly go much lower, but a cut is possible) 10.51am GMT10:51 What does rising real wages mean for interest rates? Carney replies that borrowing costs will rise at a gradual pace and a limited extent. Updated at 10.51am GMT 10.50am GMT10:50 Does today’s unemployment data, showing wages rising ahead of prices, means the cost of living squeeze over? Carney isn’t blowing any trumpets, warning that one swallow doesn’t make a summer. But he does predict that wages will rise above inflation next year (especially if inflation falls below 1%). Carney says he expects average wages to rise by 3 per cent in 2015 10.48am GMT10:48 Carney: We're disappointed by findings of FX probe OUCH. How embarrassing is it that the Bank of England had to fire its chief FX dealer yesterday (see 8.08am for details) Mark Carney replies that the Bank holds itself to the highest standards, so it held a full inquiry into its role in the foreign exchange rigging scandal. The dismissal of an employee was for reasons unrelated to the FX investigation. It was information uncovered during the FX investigation, the governor says. He adds: We are disappointed with what Lord Graviner found over the behaviour of one employee. We have an outstanding markets division with exceptional individuals who serve the public very well, day in day out. [but] Lord Grabiner found that our chief dealer was aware that information was being shared, but he didn’t pass that on. That was a mistake. He should have escalated this. But there is no evidence of deliberate misconduct. Carney, on the dismisal of Martin Mallet (Chief FX Dealer from the BoE) which was announced this morning. His failing was not to escalate. That’s interesting -- I didn’t realise before that the individual criticised in Lord Graviner’s report was the same person fired yesterday. 10.48am GMT10:48 Carney says "marginal role for fiscal policy" in stimulating euro zone. Backs up Draghi message to Germany 10.42am GMT10:42 Quarterly inflation report - Q&A begins Does the Bank of England want the European Central Bank to do more stimulus measures? UK is getting imported disinflation from Europe. We are not seeing wider damage. We are not seeing confidence being hit, either in the financial sector or the real economy,. Carney says. Eurozone monetary policy can’t do it all -- there is a role for fiscal policy, and for wide structural reforms. Updated at 10.42am GMT 10.41am GMT10:41 The FT explains how the BoE has trimmed its growth and inflation forecasts, a little: The Monetary Policy Committee’s growth forecasts were revised down a little from the forecasts published in August, reflecting a weaker global economic outlook and slower housing market. But this weakness was offset by lower assumptions for interest rates leaving the growth and inflation forecasts stable three years ahead. Bank of England cuts growth, inflation forecasts http://t.co/b0Yi1pttW9 10.40am GMT10:40 Carney: What really matters is broad shape of tightening. Not WHEN first rate hike happens 10.39am GMT10:39 What really matters is the broad process of monetary policy, not a specific date for the first interest rate rise, Mark Carney insists. 10.39am GMT10:39 Despite the global gloom, the Bank of England still reckons the UK can grow at above trend levels. Carney cites the prospect of wages (FINALLY) growing faster than inflation, and confidence in the recovery. Updated at 10.40am GMT 10.38am GMT10:38 Mark Carney: The spectre of stagnation is haunting Europe. The global economy has been moribund since the last quarterly inflation report three months ago, Mark Carney says. He is particularly gloomy about the eurozone -- saying that “the spectre of stagnation” is haunting Europe. 'A spectre is haunting Europe, the spectre of stagnation' - Carney 10.36am GMT10:36 The pound has dipped as foreign exchange traders digest the quarterly inflation report. RT @FerroTV: BoE = Dovish. pic.twitter.com/X7wFyvuMGs 10.33am GMT10:33 BoE: UK interest rates could remain on hold until next autumn Breaking: the Bank of England signaled interest rates could remain on hold until next autumn as inflation is likely to fall below 1% in early 2015. That’s the main message from its quarterly inflation report, which was just released. From the Bank of England, Angela Monaghan and Larry Elliott write: Plunging commodity prices and weak wage growth against a sluggish backdrop for global growth have triggered a drastic change of view on the outlook for inflation, which is now expected to take three years to return to the Bank’s 2% target. The Bank’s November inflation report suggested the City was right to expect rates to be left on hold at an all-time low of 0.5% until October next year. At the time of the last inflation report in August, the Bank had been signalling that a pre-election rate rise in February was most likely. “The near-term profile for inflation was markedly different from that in August, with inflation likely to remain close to 1% over the next 12 months,” the Bank said in the report. The latest forecasts from Threadneedle Street suggest inflation will fall to 1% in December, and probably be below 1% at some point over the next six months. That would force governor Mark Carney to write a letter to George Osborne explaining why inflation was more than a percentage point below target. “It is more likely than not that inflation will temporarily fall below 1% at some point over the next six months, necessitating an open letter to the chancellor.” The expectation that Carney will have to write to Osborne explaining low inflation would make a rise in interest rates – on hold since March 2009 – difficult to justify. Markets are likely to be taken by surprise by the tone of the November report, which is more dovish than the tone previously struck by the Bank. The Bank left its growth forecast for 2014 unchanged at 3.5%. Policymakers expect the Office for National Statistics to revise up its estimate of third-quarter growth to 0.8% from 0.7%. The Bank then expects growth to slow in the final quarter of this year, to 0.6%. Growth in 2015 has been revised slightly lower, to 2.9% from the Bank’s August forecast of 3%. The Bank said the housing market outlook was weaker than it was expecting three months ago. Unemployment is expected to fall to 5.7% in the fourth quarter of 2015. However, the Bank said the nature of job creation was weighing on pay growth. It said: “More recently employment growth has been concentrated among the young and the lower skilled. These changes in the composition of the workforce are likely to have weighed on the average level of pay in the economy, and therefore reduced average pay growth, in recent quarters.” The press conference is just underway...... (livefeed) 10.29am GMT10:29 Nearly time for the next event of the day, the Bank of England’s quarterly inflation report. It will be streamed live here. 10.28am GMT10:28 FX probe will trigger "flood of litigation" City law firm RPC has predicted that banks will face a “flood” of lawsuits from customers who lost out because of the manipulation in the financial markets Simon Hart, Banking Litigation Partner at RPC, says that some clients have already got in touch... “These fines and the evidence published today could trigger a flood of civil litigation from pension funds and other fund managers that lost money because of Forex manipulation moving prices against them.” “We anticipate a much larger number of high value disputes against the banks because of Forex manipulation than we saw over Libor rigging because it should be much easier for market participants to prove that they lost money.” “The short term nature of most Forex trades means that any manipulation will create clear winners and losers. The longer term nature of Libor positions made it harder to identify losses linked to manipulation.” “We have already been speaking with a number of market participants who have been awaiting this outcome.” Updated at 10.29am GMT 10.25am GMT10:25 John Mann MP has weighed in, demanding that banks pay today’s fines out of their bonuses, not their profits: “This fraudulent trading has taken place over a five-year period during which time the taxpayer has had to provide massive financial assistance to the banking sector and we have clearly been taken for a fool by the bankers. “What must happen now is that the bankers and senior managers are actually held accountable for this behaviour and RBS, the taxpayer-owned bank, must ensure that these fines are paid from its bonus pool and not simply taken from its profits.” Updated at 10.25am GMT 10.18am GMT10:18 Campaigners are shocked that the foreign exchange market was being rigged five years after the financial crisis began. Here’s David Hillman, Robin Hood Tax spokesperson: “What’s truly shocking is that this blatant corruption carried on for years after the financial crisis. Not content with crashing the economy banks continued manipulating markets and ripping us off while at the same time telling us they had changed. Hillman also argues that fines simply don’t work as a weapon to improve standards: “It is good news the Chancellor has promised some of the £2bn will be used for the wider public good but he can no longer pretend that one-off fines are enough to change banks’ greed obsessed culture. It’s time the Government dropped its opposition to the financial transactions tax which would make markets harder to scam and at the same time make banks contribute to the wider interests of society.” 9.59am GMT09:59 Summary: Banks fined £2bn for FX failings Here’s a very brief recap before the next event of the day, the Bank of England’s quarterly inflation report. Five banks have been fined a total of £2bn for their role in the manipulation of the global currency markets. The FCA found that traders at several banks conspired to rig the daily ‘fix’ -- and may even have tried to trigger their own clients’ stop losses contracts. Here’s an explanation. This video is worth watching too. The chancellor, George Osborne, has condemned the “corruption” laid bare today, and promised to use the funds for the public good. Treasury minister Andrea Leadsom has called the behaviour “disgusting”. Transcripts have shown traders congratulating each other, ‘doffing hats’, and warning about letting ‘numpty’s’ in on their secrets. The banks involved have admitted that the conduct was unacceptable. RBS is investigating 50 current or former staff. A separate investigation has found that the Bank of England did nothing wrong, although its top FX dealer has been fired for unknown reasons. At a press conference, the FCA has denied being too lenient with the banks, and warned that the City must work hard to rebuild its image with the public. Updated at 9.59am GMT 9.50am GMT09:50 The latest UK unemployment data hit the wires while I was on that FCA call. The top line is that the jobless rate remained at a six-year low of 6.0%, and wages are finally growing faster than inflation again All the details are in Andrew Sparrow’s politics liveblog. Unemployment figures released: Politics Live blog http://t.co/0YjGKiQP7f Here’s earnings vs inflation post-crisis. It’s the 1st time wages ex bonuses have surpassed CPI. But not inc bonuses pic.twitter.com/TuJMb6x2OZ 9.46am GMT09:46 And that’s the end of the FCA’s press conference (highlights start here). No big fireworks, but notable that financial reporters aren’t terribly impressed with the regulator’s conduct. Rightly so? After all....why did this scandal run for so long? Why should banks get a 30% discount for putting their hands up? And will bonuses actually be held back at banks which allowed their traders to manipulate the forex market for so long? 9.44am GMT09:44 How much money has the FCA now raised from the banking sector since the financial crisis began, and where will today’s fines go? Full details of historic fines are on the FCA’s website, and today’s money will go to the Treasury (once the regulator’s costs are deducted) Updated at 10.14am GMT 9.42am GMT09:42 How many firms are still being investigated? Only Barclays. FCA says it's done with FX enforcement, apart from Barclays. Other, unnamed banks have had to take remedial action. 9.41am GMT09:41 What’s the status of the Libor investigation? (which began several years ago). Investigations are ongoing, and ongoing criminal prosecutions are underway, scheduled to run until 2016 and beyond. 9.37am GMT09:37 Does the failure to get a settlement with Barclays mean the FCA has failed to get the co-ordinated agreement it wanted? No, Tracey McDermott insists. We wanted to get a co-ordinated settlement with as many firms as possible. Barclays chose not to take part. But this is the biggest fine we’ve ever imposed. We don’t see this as a failure at all. 9.35am GMT09:35 Could any of the deferred prosecution agreements that banks currently hold with the US Department of Justice have been broken by the FX scandal? Tracey McDermott replies that the FCA is in ‘close’ talks with US regulators over this issue..... FCA says it is in "close discussions" with US DoJ in relations to potential DPA breaches in light of forex fines. Watch this space... 9.34am GMT09:34 Have the UK banks actually suffered any reputational damage through the series of scandals that have rocked the City? After all, they’ve got roughly the same number of customers since the financial criss began? Martin Wheatley insists that banks have suffered damage to their public image. But he agrees that they have not suffered a major loss of customers. One of our broader concerns is giving customers the power, or reshaping the market, so that this could happen, he adds. 9.30am GMT09:30 Are the days of London ‘gold-plating’ international financial standards over? Wheatley says that the only way to improve standards is through international agreements, even though London controls around 40% of the FX market. 9.30am GMT09:30 9.28am GMT09:28 Isn’t it simply absurd that the FX market was not regulated properly for so long? Not sure that you can say it’s absurd, Wheatley replies. Some markets have very firm regulation from outside, and others have relied on self-regulation. What we are seeing is that self-regulation does not work....in markets where there are very large rewards, he concludes. 9.26am GMT09:26 How much damage has been caused to the reputation of the City? These scandals do hurt market confidence, Wheatley replies. The Fair and Effective Markets Review will get to the core of what needs to change, and help rebuild confidence. 9.25am GMT09:25 Does the fact that the FX market was being manipulated until October 2013 show that banks learned nothing from Libor? Martin Wheatley replies that the FCA is concerned that the affair went on too long. He insists, though, that banks have learned some lessons from recent scandals. 9.24am GMT09:24 Who decided to pursue a ‘group approach’ to the investigation? The FCA did, Wheatley replied. We didn’t want a repeat of the Libor investigation, which dragged on a long time. We want to get changes made quickly. 9.23am GMT09:23 Bank bonuses could be hit by FX scandal Should bank bonuses be cut? The FCA’s Clive Adamson explains that the FCA reviews banks’ bonus proposals and any “malice adjustments” they are planning to make. We would expect firms to think hard about this during this bonus round, he concludes. 9.21am GMT09:21 Why should banks get a 30% discount on their fines for settling early, when the evidence of misconduct is so clear? Tracey McDermott says the FCA’s policy is clear and open, and similar to criminal law where offenders get a sentence reduction for settling early. It incentivises early settlement on proper terms rather than incentivising fighting all the way, she concludes. 9.17am GMT09:17 Does the FCA reject the suggestion that some of this collusion was to do with day-to-day market operation, rather than something worse? Clive Adamson, the FCA’s director of supervision, isn’t convinced by this argument. This is about something fundamental about how these firms ran their business, Adamson says. 9.15am GMT09:15 Have consumers lost out? Wheatley explains that FX traders were moving FX rates by two or three basis points. That’s a smaller margin than you or I would normally get at the airport. It’s hard to draw a threat through to consumers, he adds. 9.13am GMT09:13 Martin Wheatley: Industry needs to get it right and get it right quickly #fx pic.twitter.com/UmPKrF0Yh7 9.12am GMT09:12 Why did it take the regulator so long to spot that this misconduct was taking place? It’s not fair to say we took too long, Tracey McDermott replies. We took action once we were alerted to the problems, and have conducted our probe within a year. We don’t accept that the regulator took too long, she insists. Martin Wheatley adds that these markets, like Libor, are often out of the public eye. But not the regulators eye, surely? 9.10am GMT09:10 Why did some bank shares rise this morning? Markets don’t like uncertainty, Wheatley replies. 9.10am GMT09:10 Could there be criminal charges against individuals? The Serious Fraud Office is already investigating. The FCA explains that spot FX trading isn’t directly within its jurisdiction. We will be looking at the conduct of individuals within the extent that we can, they add. 9.08am GMT09:08 Onto questions. What happens next, and what’s the plan for banks who have not settled today? Tracey McDermott, the FCA’s director of enforcement and financial crime, says that the issue is now closed with the five banks who have settled. She can’t speculate about what might happen with other banks. 9.07am GMT09:07 “The industry must prove it has changed if it is ever to recover the trust it has lost,” Martin Wheatley concludes. 9.07am GMT09:07 Wheatley says the UK’s “Fair and effective market review” will continue. We expect firms to put conduct at the heart of their business, and improve standards from the trading floor to the boardroom, he adds. 9.05am GMT09:05 Some FX traders have abused the trust of their employers and the regulator, Martin Wheatley adds. 9.04am GMT09:04 Martin Wheatley, of the FCA, begins the press conference by confirming that today’s fines, totalling £1.1bn, are the biggest in the regulators’ history. It reflects the serious of the failings we have uncovered, and which put the integrity of Britain’s financial system at risk, he says. Updated at 9.04am GMT 9.02am GMT09:02 FCA press conference begins Over in Canary Wharf, the Financial Conduct Authority is beginning a press briefing on today’s fines. I’ll cover the key points in this blog. It’s being streamed live here 9.01am GMT09:01 City editor Jill Treanor writes: The corruption of the world’s biggest currency dealers was laid bare on Wednesday when regulators imposed £2bn of fines on five major banks for rigging the £3.5tn a day foreign exchange markets. Regulators said they had found a “free for all culture” rife on their trading floors which allowed the markets to be rigged for five years, from January 2008 to October 2013. The much-anticipated record settlement with US and UK regulators did not include Barclays, which remains in discussions with other regulators. Each of the fines imposed on Royal Bank of Scotland, HSBC, Citibank, JP Morgan and UBS were records for the Financial Conduct Authority (FCA), smashing the penalties imposed over the last two years for Libor rigging...... Here’s Jill full story: Foreign exchange fines: banks handed £2bn in penalties for market rigging 8.56am GMT08:56 A JP Morgan spokesperson has responded thus (via the WSJ): “The trader conduct described in today’s settlements is unacceptable. In addition to making significant improvements to our systems and controls, we have spent a lot of time reinforcing the high standards of conduct expected of our people. Although the settlements acknowledge our progress, further training and enhancements are ongoing and will remain a priority.” 8.52am GMT08:52 Banking analyst Sandy Chen of Cenkos reckons that Barclays failed to settle today because of the non-prosecution agreement it currently holds with the US Department of Justice, dating back to the Libor scandal. He adds: Barclays doesn’t have much bargaining power versus the US DOJ and other regulators, in our view; the risks are that (1) Barclays’ £500m of forex provisions won’t be enough, and (2) the LIBOR NPA unravels. Updated at 8.54am GMT 8.43am GMT08:43 Treasury minister Andrea Leadsom has pledged that the traders responsible for manipulating the FX market “will not be back in a dealing room on a big salary” and “everything that can be done to punish this type of behaviour” will be done. She told BBC Radio 4’s Today programme: “It’s completely disgusting. I think taxpayers will be horrified... I don’t know if corruption is a strong enough word for it.” She said it was particularly bad that this was going on among a small group of foreign exchange traders at a time when taxpayers were bailing out the banks. As flagged up earlier, the FCA probe found wrong-doing took place between early 2008 and October 2013. Updated at 8.43am GMT 8.37am GMT08:37 Video: How the Forex market was rigged The FCA has produced a very good video, explaining in some detail how the foreign exchange market works, and how traders conspired to manipulate it. Well worth watching, so I’ve embedded it (if it doesn’t work for you, it’s also online here) 8.18am GMT08:18 And shares in UBS have risen by 0.7% in early trading. 8.17am GMT08:17 Shares in Barclays have fallen 1% in early trading in London, as traders ponder why the bank has not settled with regulators. RBS are down just 0.1%, and HSBC are down 0.4%. 8.08am GMT08:08 Bank of England dismisses chief FX dealer The Bank of England has declared that its own investigation into the forex rigging scandal found no evidence of wrong-doing at Britain’s central bank. The BoE had been accused of turning a blind eye to FX manipulation, but it insists that an inquiry by British lawyer Lord Grabiner found no evidence of “unlawful or improper behaviour”. Lord Grabiner did find that one official knew that bank traders were sharing information about client orders, and failed to escalate that issue. However, that was merely an “error in judgment that deserved criticism”, but not an act of “bad faith”. So that’s OK then. However, it did fire its chief foreign exchange dealer yesterday, but won’t say why exactly. A Bank of England spokesperson explains: “Following a disciplinary process unrelated to Lord Grabiner’s investigation, the Bank’s Chief FX Dealer, who was suspended in March, was dismissed on 11 November for serious misconduct relating to a failure to adhere to the Bank’s internal policies. “The individual’s dismissal was not at all related to the allegations investigated by Lord Grabiner, but as a result of information that came to light during the course of the Bank’s initial internal review into allegations relating to the FX market and Bank staff. This information related to the Bank’s internal policies, not to FX.” 8.04am GMT08:04 Best thing about FCA fines is always the chat logs: "RBS is god"..."we fooking killed it right" pic.twitter.com/OiNKe5KZAA 8.00am GMT08:00 Banking analyst Christopher Wheeler reckons Barclays’ shareholders may be alarmed that it has not settled with the FCA and the CFTC, and is instead pursuing its own path. The forex overhang not helpful for Barclays. Market bound to think the worse until the situation is clarified. He also reckons the five banks fined today have got off lightly: Forex fines surprisingly low given market manipulation...out of kilter with money laundering/sanctions busting fines. Very good for UBS. 7.58am GMT07:58 The FCA has also released transcripts from private chat rooms. Its settlement with HSBC shows traders at different banks chatting before the daily 4pm forex fix. The transcripts show traders agreeing to “team whack” a currency, and congratulating each other afterwards. "He expected Firm A to 'bash the fck out of it'." Scuse my French so early. From HSBC's final FX notice: http://t.co/o8eOPzy4o5 7.53am GMT07:53 FCA: Traders tried to trigger their own clients' stop loss orders One of the most alarming elements of the foreign exchange rigging scandal is that firms are accused of triggering their own clients’ stop loss orders. Those orders are meant to help a company manage the risk of Forex rate movements -- if a currency moves too much one way or another, they are ‘stopped’ out of the market, with a fixed loss. But, as the FCA’s settlement with HSBC shows, this provided an incentive for unscrupulous traders to move the FX rates to trigger stop losses and bank a profit. The FCA says: These attempts involved inappropriate disclosures to traders at other firms concerning details of the size, direction and level of client stop loss orders. The traders involved would trade in a manner aimed at manipulating the spot FX rate, such that the stop loss order was triggered. HSBC would potentially profit from this activity because if successful it would, for example, have sold the particular currency to its client pursuant to the stop loss order at a higher rate than it had bought that currency in the market. @LadyFOHF @graemewearden triggering client stops is a BFD from my perspective. 7.46am GMT07:46 Here’s a better link to the CFTC’s transcripts of private chat room conversations (the 7.25am link may not work, sorry) 7.37am GMT07:37 This transcript shows FX traders at three banks discussing whether to invite a fourth into their chatroom. One trader urges caution, as we don’t want “other numpty’s (sic) in the market” to know what they’re up to. A numpty is slang for a stupid or dozy person. Who’s the numpty now?.... Updated at 7.41am GMT 7.25am GMT07:25 Forex probe: the transcripts No financial scandal is complete without a set of juicy transcripts showing traders breaking the rules with abandon. And today, we have several examples of employees at several banks discussing how to rig the FX rates, in private chat rooms. Here’s an example, of traders from two banks “double teaming” to manipulate the daily fix, as both needed to buy euros that day. And here’s an example of traders at four different banks sharing information before the daily fix: There’s more here on the CFTC’s website. Updated at 8.20am GMT 7.09am GMT07:09 RBS is reviewing conduct of 50 staff Royal Bank of Scotland says that it is reviewing the conduct of “over 50 current and former members of trading staff around the world”. Dozens of supervisors and senior management responsible and accountable for this business are also under the spotlight, it says. Three staff have already been suspended. Philip Hampton, RBS Chairman, says the bank fully accepts the regulators’ criticism, and “condemns the actions of those employees responsible” Today is a stark reminder of the importance of culture and integrity in banking and we will rightly be judged on the strength of our response. We take these criticisms extremely seriously and are acting to ensure that our employees adhere to the highest standards and that our systems and controls are fit for purpose Updated at 7.28am GMT 6.58am GMT06:58 George Osborne: We are taking tough action to clean up corruption The Chancellor George Osborne has declared that today’s fines for currency manipulation will help clean up “corruption” in the financial markets. “Today we take tough action to clean up corruption by a few so that we have a financial system that works for everyone. It’s part of a long term plan that is fixing what went wrong in Britain’s banks and our economy. “A number of traders have been suspended or fired, and the Serious Fraud Office are conducting criminal investigations. The banks that employed them face big fines - and I will ensure that these fines are used for the wider public good. As Jill Treanor wrote last night, the £1.1bn windfall will go into the “consolidated fund” used for general purposes, so we don’t know what the “wider public good” will mean. In the past, the government has used fines from Libor rigging to make donations to armed forces charities and the emergency service. 6.49am GMT06:49 Bank (eg RBS) FX fine disclosures make clear: they were ripping off their own clients to benefit themselves 6.48am GMT06:48 How FX fixing works So how did traders at some of the world’s largest banks conspire to rig the currency markets? Well, it all centres on what’s called the “daily fix” -- a process that takes place at 4pm London time each day. The fix (an unfortunate term, under the circumstances) records exactly what value that major currencies are trading at. Regulators have found that traders at different banks shared information about what orders they were putting through. This allowed them to profit, because they could predict how the FX rates would move around 4pm. Many clients like to trade around the daily fix, so huge orders can be flowing through the market at that time. Regulators have found that traders at different Banks formed “tight knit groups” in which information was shared about client activity, including using code names to identify clients without naming them. These groups were described as, for example,“the players”, “the 3 musketeers”, “1 team, 1 dream”, “a co-operative” and “the A-team”. The FCA explains: Traders shared the information obtained through these groups to help them work out their trading strategies. They then attempted to manipulate fix rates and trigger client “stop loss” orders (which are designed to limit the losses a client could face if exposed to adverse currency rate movements). This involved traders attempting to manipulate the relevant currency rate in the market, for example, to ensure that the rate at which the bank had agreed to sell a particular currency to its clients was higher than the average rate it had bought that currency for in the market. If successful, the bank would profit. 6.48am GMT06:48 Remarkably, this misconduct took place over more than five years, and only ended a year ago. FCA says the problems took place between January 2008 and October 2013 6.45am GMT06:45 And here’s how the fines from America’s CFTC break down: $310m on both Citibank and JPMorgan, $290 million each on Royal Bank of Scotland and UBS and $275 million on HSBC.. 6.38am GMT06:38 The FCA also says that it will “progress our investigation” into Barclays. As City editor Jill Treanor explains, Barclays was expected to settle with the FCA and CFTC, but has now got it alone... The FCA agreement had expected to include Barclays: regulator says "will progress investigation in to that firm" Barclays says had been offered the same deal as others but has decided to do a settlement with a broader group of regulators 6.33am GMT06:33 FCA record fines: the details The Financial Conduct Authority has issued a pretty damning statement into the misconduct at these five banks. It declared that: At the heart of today’s action is our finding that the failings at these Banks undermine confidence in the UK financial system and put its integrity at risk. It has found that Citibank, HSBC, JPMorgan, RBS and UBS were all guilty of “ineffective controls”, which allowed traders to put their own interests ahead of their clients The FCA also blasts the banks for failing to manage “obvious risks” around confidentiality, conflicts of interest and trading conduct. And here’s how these record fines break down: 6.31am GMT06:31 Martin Wheatley, chief executive of the FCA, says the regulator is not prepared to tolerate conduct which “imperils market integrity or the wider UK financial system” Today’s record fines mark the gravity of the failings we found and firms need to take responsibility for putting it right. They must make sure their traders do not game the system to boost profits or leave the ethics of their conduct to compliance to worry about. 6.28am GMT06:28 Today’s fines are the largest ever imposed by the FCA, or its predecessor the Financial Services Authority (FSA), and this is the first time the FCA has pursued a settlement with a group of banks in this way. 6.22am GMT06:22 Banks fined £2bn over foreign exchange rigging Good morning. It’s another dark day for the banking sector, with several of the world’s biggest financial institutions being fined for their role in rigging the global foreign exchange market. In the last few moments, regulators on both sides of the Atlantic have announced fines totalling around £2bn, or $3.1bn, against HSBC, Royal Bank of Scotland, UBS, JP Morgan and Citigroup. The UK’s Financial Conduct Authority has imposed fines totalling £1.1bn, and America’s CFTC has imposed fines of an additional $1.4bn, (£900m). All five banks have been penalised because their staff colluded to fix the official rates at which currencies were trading against each other in the international markets. FCA fines five banks £1.1bn for failing to spot problems in their foreign exchange business We had been expecting six banks to be fined, but Barclays does not appear on the list. I’ll be covering all the reaction to this latest scandal to hit the financial sector. Updated at 6.24am GMT |