icon bookmark-bicon bookmarkicon cameraicon checkicon chevron downicon chevron lefticon chevron righticon chevron upicon closeicon v-compressicon downloadicon editicon v-expandicon fbicon fileicon filtericon flag ruicon full chevron downicon full chevron lefticon full chevron righticon full chevron upicon gpicon insicon mailicon moveicon-musicicon mutedicon nomutedicon okicon v-pauseicon v-playicon searchicon shareicon sign inicon sign upicon stepbackicon stepforicon swipe downicon tagicon tagsicon tgicon trashicon twicon vkicon yticon wticon fm

Major US lenders could pay additional $104 bn in legal charges – S&P

Major US lenders could pay additional $104 bn in legal charges – S&P
The eight biggest US banks, including JPMorgan and Bank of America may need to spend an extra $104 billion to settle mortgage-related issues. That’s two thirds of $154.9 billion banks’ reserves that they accumulated to stand the potential legal costs.

The major US banks may have to pay an additional penalty of between $56.5 billion and $104 billion in potential mortgage payouts, according to the rating agency Standard & Poor's. 

"Notably, mortgage-related litigation has recently gotten a second wind and has expanded beyond investor claims," S&P credit analysts led by Stuart Plesser wrote in a report.

However, the lenders under fire have accumulated $154.9 billion in the form of a so-called “safety pillow”, expecting a new wave of indictments from investors wanting compensation for mortgage-backed securities made up of bad loans.

Earlier this month JPMorgan agreed final details of its record $13 billion settlement for selling "bad loans" before the US financial crisis. This is the biggest penalty of a financial firm in U.S. history.

 Meanwhile, a similar $8.5 billion settlement between Bank of America and 22 institutional investors has been under consideration in a New York district court since June 2011, Reuters reports.

The legal expenses have already affected the third-quarter profit of U.S. banks. The Federal Deposit Insurance Corporation (FDIC) reported that the total net income of its insured banks fell by $1.5 billion to $36 billion in the third quarter, which is the first year-on-year decline since the second quarter of 2009.

JPMorgan was a big contributor in that decline. In October the bank reported its first loss since 2004, following a $7.2 billion penalty for mis-selling mortgage-backed securities. 

The negative impact of legal expenses on bank’s bottom line wont' affect its ratings as the risks are already calculated into the equation.

"Despite the substantial legal costs already incurred and the raft of new legal issues, we currently don't expect legal settlements to result in negative rating actions for the U.S. banks with the largest legal exposure," the S&P report said.

Dear readers and commenters,

We have implemented a new engine for our comment section. We hope the transition goes smoothly for all of you. Unfortunately, the comments made before the change have been lost due to a technical problem. We are working on restoring them, and hoping to see you fill up the comment section with new ones. You should still be able to log in to comment using your social-media profiles, but if you signed up under an RT profile before, you are invited to create a new profile with the new commenting system.

Sorry for the inconvenience, and looking forward to your future comments,

RT Team.

Podcasts