Banks looking fine

October 2, 2013

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“I haven’t seen morale this bad since the Titanic,” a financial services recruiter told the WSJ in a story about the increasingly dour world of big banks. That nasty third quarter outlook can be chalked up to slumping mortgage sales, lower trading — and, once again, seemingly endless fines. Since the crisis, Bloomberg writes, overall legal costs, including whopping regulatory fines, have hit nearly $103 billion for America’s six largest banks. Roughly half of those costs are made up of payments to mortgage investors.

Today, there’s more: New York’s attorney general is expected to file suit accusing Wells Fargo of violating the terms of the 2011 national mortgage settlement. As the NYT writes, it’s the first time a state AG has sued a bank for allegedly disobeying the terms of the $25 billion settlement, which was intended to help struggling homeowners after the massive robo-signing scandal. On Monday, Wells Fargo also agreed to pay $869 million to settle with Freddie Mac over pre-crisis sales of mortgage securities.

The standout when it comes to fines, however, is JPMorgan. The bank just paid $920 million to settle the London Whale scandal and $389 million over its credit card practices, all while finalizing an $11 billion settlement with US state and federal authorities. At issue is Washington Mutual’s packaging of mortgage-backed securities before the crisis — JPMorgan bought WaMu in 2008 for $1.9  billion. The FT notes that BP paid less to settle criminal charges over the Gulf oil spill. A legal battle between the FDIC and JPMorgan, Reuters writes, may mean the agency could end up absorbing about $3 billion of JPMorgan’s settlement costs — in other words, America’s banks, as a group, would end up footing some of JPMorgan’s bill.

In mid-September, Rob Cox and Antony Currie put JPMorgan’s litigation problem in perspective: Bank of America has set aside some $10 billion in litigation reserves since 2010, while JPMorgan has set aside $21 billion over the last four years. Without these costs, they write, JPMorgan could have boosted its profit 21% between 2010 and 2012. Keith Mullin of IFR argues that banks like JPMorgan are simply “drowning” in legal costs.

Still, if you see JPMorgan as a victim of regulators who are punishing the bank for the actions of companies they bought during the crisis, Peter Eavis says think again. JPMorgan bought both WaMu and Bear Stearns with profits in mind, used accounting maneuvers to minimize its risk, and inherited the banks’ multi-billion-dollar tax breaks. Even after billions in legal fees, both acquisitions, Eavis suggests, could end up being a net positive for JPMorgan. – Ryan McCarthy

On to today’s links:

Pivots
Zynga founder bored with games – WSJ

New Normal
The “boom, bust, flip” phenomenon, and how inequality got worse after the crisis –  Catherine Rampell

Governance
Big investors are calling for Bill Gates to step down as Microsoft’s chairman – Reuters

UGH
How the government shutdown could threaten the housing recovery – Bloomberg
The nine most painful impacts of a government shutdown – Brad Plumer

Bitcoin
“The closure of Silk Road is the best thing that could have happened to Bitcoin” – Kevin Roose

Data Points
The group behind the government shutdown represent only 4.3% of the population – Walter Hickey

Yikes
Barclay’s casual Friday: “It’s a complete slap in the face to Erin Callan’s personal shopper” – John Carney

Alpha
Dan Loeb goes Dan Loeb on Sotheby’s – SEC
Valuations are “obscene” right now – John Hussman

Fascinating
“There are no significant facts about individual human beings” – A guide to moral philosophy – Charles Foster

Servicey
Twitter founder’s simple formula for building a great web product – Ryan Tate

Awesome
The complete history of Twitter as told through tortured descriptions of it in the New York Times – Matt Phillips

Popular Myths
The government safety net didn’t didn’t explode during the recession – Stephen Gandel

Listicles
10 events that changed the repo market – Scott Skyrm

Ouch
Cargill used shell companies to buy Colombian land reserved for the poor – Tim Fernholz

 

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