JPMorgan Discloses Criminal Investigation, Says Losses Could Top $5.9 Billion

The announcement follows a similar disclosure by Citigroup, as authorities take a closer look at the suspect trading in the foreign exchange market.

Eduardo Munoz / Reuters

JPMorgan is in the midst of another investigation by the Justice Department that could end in a massive monetary penalty.

The bank disclosed in a regulatory document that the Justice Department is conducting a criminal investigation into its foreign exchange trading. The bank also disclosed that the Commodity Futures Trading Commission, the U.K. Financial Conduct Authority, and other foreign regulators were engaging in civil investigations related to possible manipulation of the foreign exchange market in London.

JPMorgan said it was cooperating with the investigation and "is currently engaged in discussions with DOJ, and various regulatory and civil enforcement authorities, about resolving their respective investigations."

A big legal hit would be far from the first for the country's largest bank. In 2013, JPMorgan paid over $20 billion in settlements, fines, and compensation to settle investigations into mortgage securities trading, its massive "London Whale" derivatives loss, and its relationship with Bernie Madoff.

Its latest disclosure comes a few days after Citigroup restated its third-quarter earnings by $600 million because of "rapidly-evolving regulatory inquiries and investigations" and disclosed that the Justice Department and financial regulators in the U.S., U.K., and Switzerland were "conducting investigations or making inquiries regarding Citigroup's foreign exchange business."

The bank said it expects "heightened regulatory scrutiny and governmental investigations and enforcement actions to continue for it and the for the financial services industry as a whole." This would include, JPMorgan said, regulators taking "formal enforcement action[s], rather than taking informal supervisory actions, more frequently than they have done historically." The bank also noted that, recently, "U.S. government officials have emphasized their willingness to bring criminal actions against financial institutions, and criminal prosecutors in the U.S. have increasingly sought, and obtained, pleas and other criminal sanctions from those institutions."

JPMorgan also upped the range of "reasonably possible losses" beyond the reserves it already has set aside for litigation to $5.9 billion, compared with $4.6 billion three months ago.

When the bank reported its earnings for the third quarter in the middle of last month, its chief financial officer, Marianne Lake, said that resolutions to investigations into its foreign exchange trading "are further progressed in this quarter as opposed to the last." The bank put aside another $1 billion for legal costs in the third quarter, which Lake said was "in large part" related to foreign exchange probes.

Large banks, especially in Europe, have taken billions of dollars worth of hits to their profits in the third quarter to deal with expected legal costs stemming from investigations into foreign exchange manipulation. RBS set aside $640 million, Deutsche Bank has had a $1.1 billion legal charge, along with $800 million for Barclays.

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