The long reach of the New York attorney general's office appears to be stretching further into Europe.
On Tuesday, the Swiss bank UBS and Deutsche Bank of Germany became the latest banks to disclose that they were facing inquiries from regulators after Attorney General Eric T Schneiderman of New York sued the British bank Barclays last month over its private stock trading platform, known as a dark pool.
Schneiderman has accused Barclays of favouring high-frequency traders over other investors in its dark pool, known as Barclays LX. Barclays has asked that the lawsuit be dismissed, saying Schneiderman overstepped his authority.
UBS said on Tuesday that it had received inquiries about its own dark pool, or alternative trading system, and its order routing and execution practices from the Securities and Exchange Commission, the New York attorney general and other regulators as part of an industrywide inquiry.
"These inquiries include an SEC investigation that began in early 2012 concerning features of UBS's ATS, including certain order types and disclosure practices that were discontinued two years ago," UBS said, referring to its alternative trading system.
Deutsche Bank separately disclosed on Tuesday that it had received inquiries from regulators related to high-frequency trading. The German lender did not disclose the regulators, but Schneiderman's office has made inquiries to Deutsche Bank on issues related to its dark pool and high-frequency trading, according to a person briefed on the matter.
UBS and Deutsche Bank said they were cooperating in the inquiries. Schneiderman's office is also said to be looking at Credit Suisse over dark pools.
Both banks are among dozens of defendants in a series of lawsuits involving high-frequency trading and dark pools.
Dark pools have grown in popularity in recent years, in part because they allow big investors, such as pension funds, to place orders privately, without alerting the rest of the market to their intentions. Many of those alternative markets are operated by the world's largest banks.
Schneiderman has accused Barclays of falsely representing the concentration of high-frequency traders in its dark pool and providing investors with misleading marketing materials.
The dark pool run by Barclays, Barclays LX, was part of its acquisition of certain operations of Lehman Brothers in 2008.
News of the latest inquiries come as Deutsche Bank and UBS are trying to resolve and move past a series of legal and regulatory issues that date back to the financial crisis.
On Tuesday, UBS said it had booked charges of 254 million Swiss francs, or about $281 million, in the second quarter for litigation and regulatory matters. It also announced that it had agreed to pay another euro 300 million, or about $403 million, to resolve an investigation by tax authorities in Germany.
On a conference call with analysts on Tuesday, Sergio P Ermotti, the UBS chief executive said the Swiss bank had made progress on a number of its legacy legal issues.
"However, several industry issues remain that will require substantial focus and resource. We will continue to work persistently to resolve those that affect us," Ermotti said. "We continue to invest in our compliance and operational risk processes and foster and promote a culture which limits financial and reputational risk."
UBS was placed under formal investigation by French authorities this month in a tax evasion inquiry and ordered to post bail of more than $1 billion.
On Tuesday, Deutsche Bank said that it increased the amount it set aside for litigation expenses by €470 million in the second quarter to a total to €2.2 billion. The increase followed recent settlements paid by other banks, according to Stefan Krause, Deutsche Bank's chief financial officer.
Deutsche Bank is still facing regulatory investigations regarding its role in setting the London interbank offered rate, as well as a global inquiry into whether traders at several of the world's largest banks colluded to potential manipulate the $5-trillion-a-day foreign exchange market.
It also is facing an investigation into whether improperly conducted business with countries facing United States sanctions.
In December, the German lender was one of several banks that agreed to settle with European antitrust regulators over manipulation of benchmark interest rates tied to the euro, paying a fine of about €466 million.
On Tuesday, the credit rating agency Moody's Investor Service downgraded the senior debt rating of Deutsche Bank, noting the lender has been "negatively affected by high litigation, regulatory and restructuring costs as well as losses from its legacy portfolio" since 2012. The bank also is a difficult environment and regulatory challenges within its capital markets businesses, Moody's said.
"Due to its revenue and expense headwinds, Moody's expects that Deutsche Bank's results will remain depressed at least through 2014 and 2015," Moody's said in a note on Tuesday. "The bank's capital position has strengthened, due to a recent tier one capital raise, but a significant portion of the fresh capital may be required to address the firm's exposure to future litigation and regulatory costs."
Citigroup, in a research note on Tuesday, said that "litigation and regulatory issues continue to take the 'shine' away" from Deutsche Bank's resilient investment bank and continued cost improvements in the second quarter.
©2014 The New York Times News Service
