Big Banks under Big Investigation – Another mini-recession in making?

An article by Punit    No Comments

Eight of the largest banks on Wall Street are in big trouble as a criminal investigation is looking at whether or not they misled rating agencies in regards to mortgage-derivative deals. Subpoenas have been issued and it is no surprise that the financial sector took such a hit this past week, pulling down the rest of the stock market and Dow Jones in the process.

JP Morgan Chase & Company, Citigroup Inc, Deutsche Bank AG, UBS AG, Morgan Stanley and Goldman Sachs Group are all in some hot water due to a criminal investigation being issued by the Securities and Exchange Commission. Many regulators are scrutinizing the transactions that occurred as the world began to fall into a mortgage meltdown that started the global financial crisis. This investigation is looking at mortgage-bond deals and criminal charges are being looked at although it is not likely all the banks will face criminal charges.

In addition, the New York Attorney General’s Office is looking at eight banks including Morgan Stanley, Goldman Sachs and Citigroup to see if they misled rating agencies regarding mortgage-derivative deals. Subpoenas have been issued against four U.S banks and four European banks including Credit Agricole SA, Credit Suisse Groupe AG, Deutsche Bank, UBS and Merrill Lynch.

This is not good considering less than one month ago the Securities and Exchange Commission charged Goldman Sachs with civil fraud in regards to how they marketed the subprime mortgage product.

Naturally, all the banks have stated completely that they are cooperating with the Securities and Exchanges Commission, as well as the Attorney General’s office.

Overall, this brought the financial sector down for the week as investors began to worry about the effect these investigations were going to have on a sector that was only just now recovering. Overall, the Dow Jones fell over 100 points for the week as the financial sector and other sectors like retail and technology reported bad sales and poor forecasts. This investigation could not come at a worse time for the Dow Jones or investors. Only one week ago, the stock market fell by 1,000 points due to a computer glitch. Investor confidence is still down as many worry about the future ahead.

The financial sector took a big hit as two separate investigations began into whether or not some of the largest banks in the world had practiced illegal activities in the lead up to the financial crisis that has rocked the world. While no criminal charges have been laid, it can be expected that a few charges will be levied against at least a couple of banks. This is not good for the financial crisis considering the Goldman Sachs criminal charges that came less than one month ago. Will the financial sector see a deep fall after recovering? Time will tell.

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