The foreign-exchange trading business was in upheaval across Wall Street as senior executives resigned and others were fired amid an expanding probe of possible manipulation.
Benjamin Lawsky, superintendent of New York’s Department of Financial Services, asked more than a dozen firms, including Deutsche Bank AG, Goldman Sachs Group Inc., and Citigroup Inc., for documents on their currency-trading practices, said a person with knowledge of the matter. Deutsche Bank, the top foreign-exchange trader, fired four dealers after an internal probe, people with knowledge of the move said. Goldman Sachs lost two partners, while Citigroup said its foreign-exchange chief will leave in March.
Lawsky’s probe is at least the 12th announced by authorities in Europe, the U.S., and Asia since Bloomberg News reported that traders at the world’s largest banks colluded to manipulate the benchmark WM/Reuters rates. Even staff who aren’t being probed are reassessing career plans as the scandal forces firms to change fundamental practices as revenue falls.
“Currency traders are now sitting in an unprecedented and unwelcome spotlight,” said John Purcell, chief executive officer of Purcell & Co., a London-based executive-search firm. “Regulatory pressures, scandals, and attendant reputational issues are making it a much more challenging environment.”
At least 16 traders have been suspended or put on leave amid the global probe. Citigroup last month fired European spot trading chief Rohan Ramchandani.
Deutsche Bank dismissed three New York-based traders following an internal investigation, a person familiar with the matter said earlier today. Diego Moraiz, who dealt in Latin American currencies; Robert Wallden, who was questioned by the U.S. Federal Bureau of Investigation last year about his electronic communications concerning foreign-exchange markets; and Christopher Fahy were fired for inappropriate communications, according to the person.
The bank also fired Ezequiel Starobinsky, a trader based in Buenos Aires, Argentina, a person with knowledge of the matter said. A phone call to a number for Starobinsky wasn’t answered.
“Deutsche Bank has received requests for information from regulatory authorities that are investigating trading in the foreign-exchange market,” Renee Calabro, a spokeswoman for the company, said in an email. “The bank is cooperating with those investigations and will take disciplinary action with regards to individuals if merited.”
On Their Own Volition
Others are leaving the industry on their own volition. Citigroup, the third-largest U.S. bank, said foreign-exchange head Anil Prasad will leave the bank to “pursue other interests,” according to an internal memo. His exit isn’t related to the industry probe, said a person with knowledge of the situation.
Steven Cho and Leland Lim, two partners in Goldman Sachs’s currency trading business, have also left, a person briefed on the matter said today. Cho was global head of spot and forward trading of G-10 currencies in New York, while Lim was co-head of macro trading, which includes interest rates and currencies, for Asia, excluding Japan, said the person. Cho and Lim were both named partners in 2010.
Prasad, Cho, and Lim haven’t been accused of any wrongdoing.
Wall Street firms often see departures in February and March after awarding year-end bonuses, which can account for the majority of an employee’s pay. Some banks also make cuts in their senior ranks around this time to make room for new hires and internal promotions.
Lawsky also requested information from Credit Suisse Group AG and Standard Chartered Plc. Spokesmen at Citigroup, Standard Chartered, Credit Suisse, and Goldman Sachs declined to comment on the departures or Lawsky’s investigation.
Lawsky, who has authority over financial institutions chartered in his state, including several non-U.S. banks that do business in the country, asked for traders’ e-mails and instant messages to review whether they manipulated currency rates, according to the person. While he isn’t authorized to bring criminal charges, he can make referrals to prosecutors.
‘Enforcer With Zeal’
“You have a law enforcer with zeal who no doubt has numerous weapons, and he’s prepared to deploy them on behalf of the law and on behalf of consumers,” said Bartlett Naylor, a lobbyist for Public Citizen, a Washington-based consumer group. “The record shows that’s missing in so many other places including the federal level.”
In August 2012, Lawsky garnered attention when he made public statements about possibly revoking Standard Chartered’s banking license over the bank’s violations of U.S. sanctions involving dollar transfers to Iranian clients.
The investigations come as diminished price fluctuations trigger a drop in trading revenue at the biggest banks. UBS AG, Switzerland’s largest bank, said foreign-exchange revenue declined in the fourth quarter in part because of “client risk appetite,” according to a statement.
Volumes in the biggest financial market fell to $4.87 trillion in December compared with $5.7 trillion in June, according to the latest data from CLS Bank, which operates the world’s largest foreign-exchange settlement system.
Deutsche Bank’s Currency Volatility Index, which measures the market’s expectation of future price swings for nine currency pairs, slumped to as low as 7.41 percent on Jan. 13 from 10.6 percent on June 28. That’s a 30 percent drop. The measure was as high as 15.8 percent in September 2011.
Germany is pushing firms to shift currency trading to regulated exchanges, Deputy Finance Minister Michael Meister said yesterday.
Banks are also overhauling rules governing how traders execute client orders and communicate before key benchmarks are set. Goldman Sachs, Royal Bank of Scotland Group Plc, UBS, JPMorgan Chase & Co., and Citigroup have all banned employees from taking part in chat rooms involving other banks. The move ended conversations used by traders across firms to agree on transactions, share gossip, and exchange tips on business flows.
“The foreign-exchange landscape is rapidly changing, with increased automation and financial-services industry regulation,” said Andy Naranjo, finance professor at the University of Florida in Gainesville who specializes in foreign-exchange markets. “Not surprisingly, effective FX traders are talented people who choose to re-utilize their skills in other capital market areas with more upside potential.”
Wall Street foreign-exchange dealers will see a 2 percent rise in compensation in 2013, compared with a 19 percent increase for equities salesmen and traders, according to a November report by recruitment firm Options Group Inc.
“Currencies aren’t the flavor of the month anymore,” said Jason Kennedy, chief executive officer of London-based recruitment firm Kennedy Group. “It’s not what it used to be in terms of pay, career progression, and management.”