Legal tabs for U.S. banks surpass $100 billion
The astronomical figure may just be the beginning of a larger discussion that evaluates what exactly the government has done to compensate victims of the financial crisis.
August 28, 2013 at 09:38 AM
3 minute read
The original version of this story was published on Law.com
In the five years since the financial crisis, the top six largest banks in the U.S. – led by Bank of America and JPMorgan Chase – have racked up $103 billion in legal costs, more than all dividends paid to shareholders since 2008, according to Reuters.
Based on data compiled by Bloomberg, the sum exceeds the banks' combined profit last year – for payments to lawyers and litigation, as well as for settling claims about shoddy mortgages and foreclosures.
This astronomical figure may just be the beginning of a larger discussion that evaluates what exactly the government has done to compensate victims of the financial crisis.
As regulators, investors and prosecutors initiate new claims, the tally could surge even higher, according to investment analysts who do not recommend buying bank stocks.
“They've crossed the point of no return when it comes to the effects that these expenses are going to have on earnings,” Jeffrey Sica, who helps oversee more than $1 billion as head of Sica Wealth Management LLC in Morristown, N.J., told Bloomberg. “This is going to keep on hurting them, and people will start paying more attention.”
Moody's Investors Services recently placed the senior and subordinated debt ratings of the holding companies for the six largest U.S. banks on review as it considers reducing its government (or systemic) support assumptions to reflect the impact of U.S. bank resolution policies.
Four of them – Goldman Sachs, JP Morgan Chase, Morgan Stanley and Wells Fargo – are on review for downgrade. The other two – Bank of America and Citigroup – are on review direction uncertain, as the rating agency considers the potentially offsetting impact of improvements in the standalone strength of their main operating subsidiaries, the ratings on which were simultaneously placed on review for upgrade.
Bearing the brunt of the banks' total legal costs – which comprise about 75 percent – are JPMorgan and Bank of America. JPMorgan has allocated $21.3 billion to legal fees and litigation since the start of 2008, more than any other lender, and added $8.1 billion to reserves for mortgage buybacks.
According to a recent report issued by Cornerstone Research, 2013 has seen a precipitous increase in FDIC litigation against the directors and officers of failed financial institutions, even as new bank closures slow down and mortgage lending recovers. As of July 1, the agency had filed 19 suits in 2013 and was on pace to file 39 such lawsuits by year's end, the greatest number in a single year since the financial crisis began.
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