Financial Scandal Fines Haunting Europe's Banks as Investigations Rumble on

There are still 15 major litigation issues hanging over the heads of European banks with the potential to cost each institution more than €100m in fines.

The three biggest are the scandals around foreign exchange market fixing, Libor manipulation and the sub-prime mortgages in the US that laid the foundations for the financial crisis, which have already cost banks billions and are set to cost them even more.

That is according to the German private bank Berenberg, which estimates that there are still 63 potential fine situations outstanding from the various on-going investigations by regulators and authorities across the world.

"Fines and litigation are among the major uncertainties in the banking sector," said the Berenberg analysts' note.

"This year has seen an escalation in the level of fines imposed on banks and it is clear that a significant number of issues remain outstanding.

"For those lacking suitable buffers, these potential fines will hamper capital return, in our view, and in some situations could trigger capital raising."

Berenberg highlighted Barclays and Credit Suisse as two of the banks with the smallest buffers against any potential fines, meaning they may have to raise capital by selling shares instead.

The note said UBS and HSBC looked like they the biggest buffers. It added that they appeared to be still able to pay out dividends to shareholders from profits even in the event of fines.

But there is uncertainty around Berenberg's research. The bank said there is too much guesswork in pinpointing the specific fines that will likely be laid on institutions under investigation. Instead it chose to look at the capital buffers in place to draw conclusions about the impact of fines.

And it said that there "is a marked difference between banks as to what they consider to be potential issues".

"Different banks may be exposed to the same issue – some have disclosed their exposure, others have not," said the note.

"For instance, take the European Commission's credit default swaps investigation lists the banks involved, however not all these banks have listed this investigation in the risk sections of their annual reports."

Several financial regulators across the world, including in the US, UK and Hong Kong, are probing allegations of market manipulation in the vast foreign exchange markets. Several major banks have already fired or suspended key currency trading staff as the investigations wear on.

Each day, $5tn (£3.1tn, €3.7tn) worth of currency trading takes place. It is the largest market in the financial system and is pegged to the value of funds, derivatives and products.

And work is still ongoing into the Libor fixing investigation, which has seen several banks handed billions of pounds' worth of fines since the scandal erupted in 2012.

It was discovered that traders and behind the scenes bank staff had been conspiring to manipulate Libor, a set of daily rates used all over the world as a benchmark for other interest rates, so they could maximise their own profits.

In the US, banks are facing financial retribution for their role in the selling of toxic financial products, underpinned by sub-prime mortgages, to unwitting investors.

When the US Federal Reserve hiked rates it sparked a wave of sub-prime defaults and so the whole mortgage-backed securities market – on which much of the modern global financial system was built – shattered and the financial crisis began.