Five banks have been hit with record fines for rigging currency exchange rates, totalling $5.7bn (3.6bn), including our very own Barclays (LSE: BARC)(NYSE: BCS.US) and Royal Bank of Scotland (LSE: RBS)(NYSE: RBS.US). In fact, Barclays faces the biggest penalty at $2.4bn, as it failed to settle investigations last November along with the other four.
The news emerged yesterday after the UK markets closed, so what was the morning response? Well, the shares opened as if nothing had happened, with Barclays up a penny as I write to 272.5p and RBS unchanged at 355p!
The investigation concluded that a private chat room was used regularly between 2007 and 2012, where currency traders from the banks met and manipulated exchange rates, financially harming large numbers of investors around the world including many of their own clients. By adjusting their own currency positions in collaboration with each other, the cartel of traders were able to cheat their way to profits for themselves at the time of each daily exchange rate fix.
If you think that stinks of the very worst of banking greed, youll get no disagreement from me. But my biggest surprise is that nobody seems to care much, judging by the way the market has shrugged it off this morning. Its not as if $2.4bn is insignificant to Barclays equivalent to 1.5bn, it amounts to 23% of the 6.4bn in pre-tax profit forecast for this year.
The penalty for RBS is smaller at $669m, though thats actually around a third of the 1.3bn pre-tax expected this year but I guess in the long run, its small change compared to the riches that the world of banking will generate.
Barclays has sacked eight employees who were involved in the scandal, while RBS chief Antony Jenkins has rued that some individuals have once more brought our company and industry into disrepute. Putting aside the irony of bringing a thoroughly disreputable industry into disrepute, I dont think that goes far enough those responsible should face criminal prosecution just like the common or garden thieves they are.
But with my investor head on, I can only marvel at the resilience of the banking sector. There are other ongoing investigations yet to be concluded, and the possibility of further fines is very real. Yet it seems that investing in the business of greed itself just cant go wrong right now.
On that score, I have to say I think Barclays shares are cheap on a forward P/E of under 10 based on 2016 forecasts and with a predicted dividend yield of 4.1%. RBS I find considerably less attractive on a higher valuation than, and at least a year behind, fellow taxpayer-rescued Lloyds Banking Group.
And despite these setbacks, investing in FTSE 100 banks can bring great long-term rewards.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.