Bank of America Sets Aside $400 Million More for Currency Inquiry

Bank of America is nearing a deal with federal regulators to settle an investigation into the bank’s suspected manipulation of the currency market, the latest sign that Wall Street is bracing for another crackdown on its misbehavior.

Bank of America disclosed the development on Thursday in a news release, saying that it had increased its legal costs to deal with the currency market investigation. Although the bank did not name the regulators, people briefed on the investigation identified the agencies as the Office of the Comptroller of the Currency and theFederal Reserve

In the news release, Bank of America said it recently had “advanced discussions” with the regulators about a potential settlement, forcing the bank to increase its legal reserves to pay for the expected fine. A settlement is not final, the people briefed on the matter said.

The increased legal bill resulted in a $400 million charge that cut into the earnings that Bank of America reported for the third quarter a few weeks ago. The charge resulted in the bank reporting a loss of $232 million, or 4 cents a share, in the quarter.

Bank of America becomes the latest bank ensnared in the foreign exchange investigation to retroactively increase its expected legal costs — and lower its earnings — after reporting third-quarter results last month. Banks are required to set aside legal reserves once they have a clear picture of the costs they are likely to pay in a potential settlement.

For Bank of America, the costs came into focus between when it reported earnings on Oct. 15 and Thursday, when the bank filed its official quarterly report with the Securities and Exchange Commission.

Last week, Citigroup announced that it had to lower its profit by $600 million to deal with the foreign currency investigation. Earlier this week, JPMorgan Chase said its litigation expenses in the third quarter, including those related to the foreign exchange investigation, totaled about $1.1 billion.

The fractured nature of the currency investigation is one of the challenges it poses for the banks.

In addition to the comptroller’s office and the Fed, British regulators are separately closing in on deals with six banks, including Citigroup and JPMorgan Chase, and are aiming to announce settlements by the end of the month. The Commodity Futures Trading Commission may join those civil agreements, while the Justice Department in Washington is pursuing a different route with a potential criminal case against at least one bank by the end of the year.

Despite the disparate investigations, the various regulators could announce the cases in unison, according to people briefed on the matter.

The $5 trillion market for currency trading is the largest in the world. Traders from different banks are suspected of manipulating the market to drive up the prices of particular currencies toward the end of the day.

Bank of America is a smaller player in this market than many of its peers and its penalties are expected to be smaller.

Still, the foreign exchange investigation compounded the bank’s already high legal expenses in the third quarter.

In August, Bank of America agreed to a $16.65 billion deal with federal and state authorities to settle civil charges related to its sale of shoddy mortgage securities. The cost of that settlement accounted for the majority of the $5.3 billion charge that the bank took in the quarter.