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Banks’ Legal Tab Still Running Higher

http://blogs.wsj.com/moneybeat/2014/07/23/banks-legal-tab-still-running-higher/?mod=WSJ_qtnews_wsjlatest

By
Saabira Chaudhuri

Published Credit: Associated Press —ASSOCIATED PRESS
The legal tab for credit-crisis and mortgage related settlements at the six largest U.S. banks by assets has risen 62% in nine months to over $107 billion, according to new data from SNL Financial.

The tab matches an October projection from the Wall Street Journal that added estimates by Bernstein Research for remaining legal exposure at three of the largest banks to data from SNL showing that the six largest U.S. banks had agreed to more than $66 billion in credit-crisis and mortgage-related settlements since 2010.

Credit-crisis settlements involve litigation brought by investors for misrepresentations and omissions that violate Federal securities laws.

The updated $107 billion tab is driven largely by settlements struck by Citigroup Inc.C +1.59% and Bank of America Corp.BAC +0.11% It also includes a $13 billion settlement that J.P. Morgan Chase & Co. struck with regulators in November.

Among the major settlements included in the updated legal tab are Citigroup’s agreement to pay $7 billion to the Justice Department to settle allegations it knowingly sold shoddy mortgages ahead of the crisis.

That deal came after Citigroup said in April it had agreed to pay $1.13 billion to 18 investors seeking to recover losses from mortgage-based securities sold before the financial crisis.

Separately, Bank of America last week said it had agreed to pay $650 million to American International Group Inc.AIG +0.59% to resolve allegations of fraud in the bank’s packaging and selling of mortgages to investors during the housing bubble.

In March, Bank of America said it would pay about $9.5 billion to settle all litigation by the Federal Housing Finance Agency over mortgage securities sold to Fannie Mae FNMA +0.71% and Freddie Mac FMCC +0.72%.

One big legal issue still hanging over the Charlotte, N.C. lender is a settlement with the Justice Department that could cost it many billions of dollars. The Wall Street Journal recently reported that Bank of America is offering $13 billion to settle civil probes by the DOJ and a number of states into the bank’s alleged handling of shoddy mortgages. That figure isn’t included in SNL’s overall $107 billion number.

In addition to the settlements, SNL’s analysts included the amounts of loans previously sold that have been repurchased.