Are Europe's banks being prosecuted - or persecuted?

Sudanese rebel fighter and flames Terrorism in Sudan in 2004: US sanctions on the country imposed in the 1990s were broken by BNP Paribas

Related Stories

Even BNP Paribas cannot shrug off a $9bn (£5.1bn) fine.

The bank is the fourth biggest by assets in the world and has been found guilty of violating US economic sanctions against Sudan, Iran and Cuba.

It had repeatedly protested that it did not violate any European law, but US prosecutors say that is beside the point.

BNP Paribas operates in the US through Bank of the West and First Hawaiian Bank, and is therefore bound by US law.

It is not the first to fall foul of the International Emergency Economic Powers Act (IEEPA) that prohibits trading with sanctioned governments.

HSBC, Standard Chartered, ING, Barclays, Credit Suisse and Lloyds have all been hit with fines for violations since 2009.

It's not gone unnoticed that they are all European banks.

And the penalties are getting bigger.

Further inquiries

Biggest fines for European banks by US regulators

Bank Fine Reason

Credit Suisse

$2.6bn (£1.5bn)

Tax evasion

HSBC

$1.9bn (£1.1bn)

Money laundering

UBS

$1.2bn* (£702m)

Libor manipulation

UBS

$780m (£456m)

Tax evasion

Rabobank

$740m** (£433m)

Libor manipulation

Standard Chartered

$674m (£394m)

Violating US sanctions

ING

$619m (£362m)

Violating US sanctions

*Does not include UK FCA fine or Swiss fine.

**Does not include UK FCA or Dutch fine.

Source: DOJ, Securities & Exchange Commission

Now other European banks fear this latest fine shows American prosecutors are targeting them with increasing aggression.

Commerzbank of Germany, Credit Agricole and Societe Generale of France and Unicredit of Italy are all under investigation over suspected sanctions violations or money laundering.

Deutsche Bank faces investigations into the rigging of interest rates and foreign exchange manipulation.

Although it says it does not believe it has violated US laws, it is raising $11.6bn in extra capital, partly as a cushion against any future legal costs.

John Raymond, senior analyst of European banks at CreditSights Research, says: "The European banks are worried.

"You have to remember they are undergoing stress tests and the possibility that they might receive heavy fines means the tests may demand they have extra capital to meet those fines."

Mood change

However, the truth is the US authorities are still fining American banks far more than European ones.

A Financial Times study in March of 200 fines and restitutions since 2007, showed that of a total of $99.5bn in penalties, only $15.5bn came from foreign banks.

US Attorney General Eric Holder US Attorney General Eric Holder: "There is no such thing as too big to jail."

In fact there is a pattern to the prosecutions.

The European banks have hit the headlines with their sanction-breaking activities and tax evasion for which they have received fines.

The Americans have been have been forced to pay fines and compensation for issues over mortgage-backed securities and home loan fraud where victims have had to be compensated.

But both European and American banks have fallen victim to a change in mood among the US authorities.

Over the past few years many believed the Department of Justice (DoJ) had gone soft on big banks.

In March last year, US Attorney General Eric Holder seemed to confirm this to the Senate Judiciary Committee.

He said: "I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications... it will have a negative impact on the national economy, perhaps even the world economy."

French politicians were swift to exploit this, with the finance minister and the governor of the bank of France publicly stating that a massive fine would cripple BNP Paribas' lending ability and slow down lending worldwide.

But Mr Holder has been back on the offensive. Last month on the Department of Justice's website he insisted: "There is no such thing as too big to jail. To be clear: no individual or company, no matter how large or how profitable, is above the law."

Benjamin Lawsky New York State's first Superintendent of Financial Services Benjamin Lawsky - a force to be reckoned with as New York State's most senior financial regulator

And then there is Benjamin Lawsky.

He is the 44-year-old superintendent of New York State's Department of Financial Services (DFS).

The DFS cannot criminally charge a bank or individuals, but Mr Lawsky has been loud and influential in his demand for accountability from the banks.

It is thought the DFS's own investigation into Credit Suisse in March pressurised it into pleading guilty to aiding tax evasion and paying penalties of $2.6bn just two months later.

Back in 2012, he forced Standard Chartered to a settlement by the radical measure of threatening to withdraw its banking licence.

Known by Le Temps newspaper in France as "Le Bete-Noire des Grandes Banques" he has been urging the resignation of senior executives at BNP Paribas.

In the face of this new assertiveness, the French bank has been caught on the back foot.

As the US authorities opened early negotiations, reportedly threatening a $16bn fine, the bank offered to pay a mere $1bn.

That may just be bargaining chutzpah, but the bank put aside just $1.1bn to cover legal costs. In April it admitted: "There is the possibility that the amount of the fines could be far in excess of the amount of the provision."

It had utterly failed to grasp the seriousness of the situation.

Paying the price

And the situation was serious, particularly the accusations of "stripping" - the deliberate removal of key details, to keep sanctioned transfers of money away from the prying eyes of regulators.

Investigators eventually found that even as late as 2011 while the bank was insisting that it was co-operating with the authorities, it was continuing to break rules on sanctions.

Again the bank appeared not to have taken the litigation threat seriously. It is now paying the price.

In sharp contrast JP Morgan Chase, facing some $20bn in penalties in the past year, has been steadily building up a war chest of more than $28bn to meet the legal pay-outs.

The New York Times recently described how chief executive Jamie Dimon personally negotiated with the Attorney General hours before the DoJ was due to announce civil charges. "A move," it reported, "that averted a lawsuit and ultimately resulted in the brokered deal."

And the American banks are still as much in the firing line as the Europeans.

The DoJ is demanding $10bn from Citigroup to settle investigations into its sale of worthless mortgage-backed securities. It is also negotiating a $13bn settlement with Bank of America.

There is much more to come, for instance the probes into interest rate and foreign exchange market manipulation. European and US authorities are both investigating a raft of banks, blind, it seems, to which side of the Atlantic they come from.

More on This Story

Related Stories

More Business stories

RSS

BBC Business Live

  1.  
    11:15: EUROZONE CRISIS
    Eurozone business activity gaph

    Business activity in the eurozone strengthened slightly in October, a key survey has shown today. But overall, the economy remains weak with new orders low and pressure on prices. Markit Economics said its composite Purchasing Managers Index (PMI) rose to 52.2 points in October from a 10-month low of 52.0 points in September.

     
  2.  
    11:01: RETAIL SALES

    Here's a bit more from the retail sales figures. Clothing and footwear sales fell 7.8% in September compared with August, according to the Office for National Statistics (ONS). Average store prices in September fell 1.4% year-on-year. That was the largest fall in five years, the ONS adds.

     
  3.  
    10:45: MORTGAGE LENDING
    Mortgage lending graph

    Mortgage lending in September was 7% higher than the same moth a year earlier at £10.6bn, according to the latest figures from the British Bankers Association (BBA). That's down a bit on August's £11bn figure but not necessarily evidence yet of a slowdown. That said, the BBA says approvals for house purchase are 10% lower than a year earlier. Translated that means fewer people are borrowing more as house prices have risen.

     
  4.  
    10:30: FOXTONS

    Foxtons's shares are now below the price public investors first paid in their worst day of trading. The shares downsized 15%, or 30.8p, to the cosier price of 174.5p, well below the premium 230p investors paid in September 2013.

     
  5.  
    10:16: TESCO EARNINGS BBC News Channel
    analyst

    Jasper Lawler, retail analyst for CMC Markets, is on the News Channel, talking about Tesco's results. "I think the one box that's been ticked is the chairman will step down," he says. But there are no signs of selling any assets like blinkbox, the supermarket's video on-demand service, "there's no signs of strategy but maybe that's to come," he adds

     
  6.  
    10:00: TESCO EARNINGS
    Philip Clarke

    Former Tesco boss Philip Clarke's reported £10m severance package is being withheld until the outcome of the Financial Conduct Authority (FCA) investigation into the supermarket's accounting practice has been concluded it's also emerged. In case you're wondering the Guardian reported the pay advisory group Manifest summed this up as his £1.1m salary and share awards, although it didn't cover his pension pot. When he resigned in July Mr Clarke was expected to continue to be paid his £1.1m salary for one year.

     
  7.  
    09:45: RETAIL SALES
    Retail sales graph

    Retail sales volumes fell 0.3% in September compared with August. But September were 2.7% higher than the same month a year ago, marking the 18th consecutive month of year-on-year growth, official figures show.

     
  8.  
    TESCO EARNINGS Via Twitter Kamal Ahmed BBC Business editor

    tweets: Three big takeouts from Tesco numbers - accounts problem cost £263m, went back to 2013, chairman to leave, sales down 4.6%

     
  9.  
    09:21: MARKET REPORT

    European markets have opened down. The FTSE in London has lost 0.54% to 6,365.10, while Frankfurt's DAX dropped 0.01% and the French CAC declined 0.09%.

     
  10.  
    09:05: TESCO EARNINGS

    In fact things might be so bad that Tesco has decided not to provide full year profit guidance blaming "a number of uncertainties which limit visibility of future performance." It adds the "commercial income overstatement" will affect its second half results as it revisit its "plans with new management"

     
  11.  
    08:49: TESCO EARNINGS

    Tesco has also warned on its full year profits outlook. It says it is "reviewing all opportunities that exist within the group to generate value and create headroom. Full year profitability could therefore be further impacted by actions we choose to take." In other words, don't expect a turnaround over the next six months.

     
  12.  
    08:35: FOXTONS FALL
    estate agent

    Estate agents Foxtons' shares have fallen 18% after it said its earnings would fall due to a sharp drop in demand in the London property market. Foxtons said its third quarter sales fell 3% to £39.3m and said political and economic uncertainty in Britain and more restrictive rules on mortgage lending were the cause. This is the Foxtons who were told in 2009 their "renewal" commission from a landlord if a tenant stayed on past the initial tenancy period - even if the agency had played no further part in arranging or managing the extended tenancy - was unfair.

     
  13.  
    08:21: TESCO EARNINGS BBC Radio 4

    Brian Roberts of Kantar Retail is talking Tesco on the Today programme. He says some retailers -Aldi - have a far simpler business model than Tesco. They buy things to sell to their customers. But most supermarkets make more money through buying. And Tesco has been the biggest sinner here, he says by "extracting its profitability from suppliers" over the last few years as opposed to its customers. That's as a result of these supplier rebates we've been hearing about recently, which mean supermarkets get a discount on the goods they buy from suppliers if they hit certain sales targets. Hope that's clear.

     
  14.  
    08:07: TESCO EARNINGS Radio 5 live

    Jane Clark, author of the blog Frugal Queen has been talking Tesco on 5 live. "I do find it a bit pricey... they are more expensive than my local fruit and veg shop for greengrocery." Tesco "will have to price match with the discounters and be aware of how little money people have." She says they need to ditch buy one get one free on junk food because people want cheaper basics.

     
  15.  
    08:06: TESCO EARNINGS
    Tesco share graph

    Tesco shareholders have reacted badly to its interim results. The supermarket's shares have opened 6.5% lower to 171p.

     
  16.  
    07:54: TESCO EARNINGS

    Tesco's rather dramatic fall in statutory pre-tax profits is the result of one-off items totalling £527m, including an adjustment relating to "prior years' commercial income" of £145m, stock write-downs of £63m, impairment charges of £136m in the UK and Europe, restructuring costs of £41m, and another £41m retrospective charge relating to a Valuation Office ruling on ATM rates plus a £27m increase in the Bank's provision for customer redress.

     
  17.  
    07:44: REED ELSEVIER

    Media firm Reed Elsevier said underlying revenue growth for the first nine months of the year was 4%. It bought 25 firms for £294m.

     
  18.  
    TESCO EARNINGS Via Email

    Winston Collinge from Carlisle writes in: "Notwithstanding the upsurge of Aldi and Lidl, isn't it just the case that there is overcapacity in the food retailer sector and they are now fighting like dogs?"

     
  19.  
    07:31: DEBENHAMS EARNINGS
    Debenhams

    And now for something completely different. Department store Debenhams says like-for-like sales rose 1.0% for the year to 30 August. Profit shrank 24% to £105.8m as profit margins narrowed.

     
  20.  
    07:21: TESCO EARNINGS

    There's an update to the Deloitte investigation into Tesco's overstatement of its expected half year profit too. The amount overstated is up - a bit - and it's no longer a singular overstatement. Tesco now says the overstatement amounted to £263m in total. The impact on its trading profit for the first half of this year is £118m. But there is a further £70m overstatement from the previous financial year and £75m from before the 2013/14 financial year. Both of those have been treated as one-off items within this set of results.

     
  21.  
    07:12: TESCO EARNINGS

    Tesco chairman, Sir Richard Broadbent, has also announced his resignation although there's no timetable yet. He says: "My decision reflects the important principle of accountability on behalf of the Board and will support the company to draw a line under the past as it enters the next phase of its development." He has come under pressure to stand down since Tesco revealed that it had mis-stated its profit outlook for the first half of 2014/15 in September.

     
  22.  
    07:08: TESCO EARNINGS

    ... are out. UK like-for-like sales excluding petrol are down 4.6%. Statutory pre-tax profits are down 91.9% to £112m. The underlying profit figure for the period (26 weeks to 23 August) is down 46.6% on the same period a year earlier to £783m.

     
  23.  
    06:55: LLOYDS JOB LOSSES BBC Radio 4

    Mr Hahn tells Today the UK banking industry needs to do more in the way of community banks. He adds banks are beginning to link up with supermarkets as a way of doing this but local communities are likely to suffer as more bank branches close. He says it has been "an error" of government policy that "we keep thinking in terms of challenger banks". What the UK banking industry really needs to think much more about is community banking and how to provide banking services to small communities, he adds.

     
  24.  
    06:41: LLOYDS JOB LOSSES BBC Radio 4
    A Lloyds Bank logo

    The 9,000 job losses at Lloyds Banking Group amount to about 10% of its total workforce. It is also expected to announce a series of branch closures. Cass Business School banking analyst Peter Hahn tells Today the way we buy things from banks has changed. That's putting pressure on bank branches. He says we'll see "fewer but better bank branches". "We'll see them more principally located, so big cities and market [towns]," he says. Mr Hahn suggests they will be slicker operations, more sales-oriented, but not used as much for "regular transactions."

     
  25.  
    06:28: GLAXOSMITHKLINE Radio 5 live

    Newspapers are reporting GlaxoSmithKline may spin off its HIV business. Holly Cook, managing editor of Morningstar's website for UK investors tells 5 liveWake Up to MoneyGSK's respiratory drug, advair is under "intense competition" and a sale through a public offer "will allow GSK to streamline itself" as its HIV drugs see "huge demand".

     
  26.  
    06:15: TESCO EARNINGS Radio 5 live

    "Like-for-like sales is the first number analysts will look at, followed by the accounting problems," says Holly Cook of Morningstar on Wake Up to Money. The online business may have done well while the supermarkets will be a "weak spot." Looking at Tesco, "a lot of customers find it a bit overwhelming and you are bombarded by information and you can't find what you want."

     
  27.  
    06:07: TESCO EARNINGS Radio 5 live
    A Tesco trolley

    "When the CEO is on gardening leave the chairman should step up and that's not happened," says Mr Roberts on Wake Up to Money, talking about the performance of Tesco chairman Sir Richard Broadbent. The supermarket discovered a £250m profit black hole. "I'd be remarkably surprised if it's limited to a 6-month period," he adds.

     
  28.  
    06:01: TESCO EARNINGS Radio 5 live

    Brian Roberts of Kantar Retail is on Wake Up to Money talking about Tesco's results, out today. "There's lots of hoops you have to jump through" as a shopper at Tesco, he says. Buy one get one free, the loyalty card, driving a car and buying the petrol. "With Aldi you just have to turn up... Tesco used to have the shopper at the centre of the business and now they've replaced the shopper with the shareholder."

     
  29.  
    06:00: Howard Mustoe Business reporter

    Good morning. Get in touch via email bizlivepage@bbc.co.uk and twitter @BBCBusiness

     
  30.  
    06:00: Matthew West Business reporter

    Morning all. Now we could try and pretend that there is other news going on (and in fairness there is some) but let's face it, the focus today is all going to be on Tesco's half year results. We'll bring you them as soon as they drop, plus all the reaction and the rest of the day's news as it happens.

     

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.