Tags: banks | legal | costs | Libor

WSJ: Large Banks’ Legal Costs Headed for $100 Billion

Thursday, 28 Mar 2013 08:00 AM

By Dan Weil

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Large global banks will likely pay more than $100 billion in legal fees when all is said and done to pay for their bad behavior in the mortgage-market collapse, the financial crisis, and the Libor rate scandal, The Wall Street Journal reports.

The big four U.S. banks — Citigroup, JPMorgan Chase, Bank of America and Wells Fargo – already have doled out $61.3 billion for financial-crisis and mortgage claims over the past three years, according to SNL Financial research firm.

U.S. banks will ultimately have to fork over another $24.7 billion for the repurchase of faulty mortgage loans, according to Compass Point Research & Trading.

Declassified:
‘Financial War’ Could Wipe Out 50% of Your Wealth’

And Libor and other settlements are expected to cost banks at least $14 billion.

While the KBW Bank Index has gained 9.6 percent so far this year, news about all the legal settlements have kept investors from driving up bank stocks further, some experts say.

"There always seems to be another negative headline, and that has kept investors on the sidelines," Jason Goldberg, an analyst with Barclays, tells The Journal.

The issue is whether banks have sent aside enough reserves to cover their legal costs without subtracting too much from profits.

"Libor is the big unknown right now, because it's still playing out at the preliminary stages," Micah Green, co-chairman of the financial-services practice at law firm Patton Boggs LLP in Washington, tells The Journal.

One good piece of news for U.S. banks is the Cyprus bailout, says star bank analyst Dick Bove of Rafferty Capital.

"It's a gift to the American banks because you've converted Europe into Latin America," he tells CNBC. Latin America’s response to past financial crises generated a capital flight to the United States, and Bove is expecting the same thing now from Europe.

"It's already happening and it's going to accelerate," he says. "People are going to try to get their money out of Europe and get it into the United States."

Declassified: ‘Financial War’ Could Wipe Out 50% of Your Wealth’

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