Banks set aside up to $7 bln as UK currency settlement looms

By Jamie McGeever

LONDON, Nov 3 (Reuters) - Major banks have set aside almost$7 billion for potential settlements with regulatorsinvestigating allegations of collusion and manipulation inforeign exchange markets, the first of which could come in theBritain later this month.

Europe's largest bank HSBC on Monday was the latestbank to make provisions in its most recent earnings report,putting aside $378 million specifically for a potentialsettlement with Britain's Financial Conduct Authority (FCA).

HSBC is the last of six banks in talks with the FCA over agroup FX settlement to report their results. The other five alsoset aside substantial sums for litigation provisions.

British banks Royal Bank of Scotland and Barclayslast week set aside $640 million and $800 million, respectively,specifically for settlements related to the global FX probewhich has been running for a year.

This means the three British banks have made almost $1.8billion provisions in their latest earnings reports specificallyfor FX-related issues.

The near $7 billion from eight banks, also includingDeutsche Bank and Credit Suisse, isn'tentirely for currency-related issues, although that's where thelion's share of the total is likely to be spent, analysts say.

Banks' provisions are cash earmarked to pay for costs orlosses that are anticipated to occur in the future and the finalamount may be more or less than the sum set aside.

However, with potential settlements still to come with theU.S. Department of Justice (DOJ) - which has shown it has thepower and willingness to levy multi-billion dollar fines onbanks for financial misconduct - the final bill could be muchhigher.

Around ten other regulators around the world are alsoinvestigating.

The FCA's talks with six banks are at an advanced stage anda settlement for between 1.5 and 2 billion pounds ($2.4-$3.2billion) could come later this month.

The six are RBS, Barclays, HSBC, Switzerland's UBS, and U.S. titans JP Morgan and Citi.Despite its position as the second biggest currency market bankin the world, Deutsche isn't part of these collective talks.

This settlement is likely to be based on banks acknowledginglax internal compliance, oversight failures and market conductbreaches by individual employees, but not deliberatemanipulation of the $5 trillion-a-day market.

On Monday, HSBC said its "detailed" talks with the FCAcentre on systems and controls relating to one part of its spotFX trading business in London.

UBS ring-fenced the most of any single bank in the thirdquarter, its $1.9 billion almost double the provisions made bythe next in line Deutsche Bank with $1.1 billion and JP Morganwith $1 billion.

All three declined to reveal in their recent earningsreports how much of these provisions were specifically forforeign exchange.

Citi added a further $600 million for legal costs, whileCredit Suisse said $400 million would be kept back for futurelitigation.

No bank has been accused of wrongdoing, but several arecooperating with UK, U.S. and other authorities around the worldin their investigations into the allegations of collusion andprice manipulation.

Settlements with U.S. regulators are expected to be muchmore costly.

Earlier this year, French bank BNP Paribas paidthe DOJ a record $8.9 billion fine for violating U.S. sanctionson Sudan, Libya and Cuba between 2002 and 2012.

Estimates on how much banks will be fined in total for FXvary wildly. Earlier this year, banking research firm Autonomousput the worldwide total at around $35 billion.

This would dwarf the $6 billion paid so far by 10 financialfirms to settle the international investigation into themanipulation of Libor interest rates. (Reporting by Jamie McGeever and Steve Slater; Editing byAlexander Smith and Toby Chopra)