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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: