Litigation risk is increasing for European banks
As it becomes more likely that the United States will be fining French bank BNP Paribas around $10 billion for evading US sanctions (over protests from French politicians), Credit Suisseâ€™s (CS) banks research team released an updated estimate for litigation costs for major European banks (pdf). Things are looking less rosy 15 months later. The original estimate, from February 2013, was $58 billion in 38 areas of potential litigation for 10 European banks. CS now thinks these banks will end up paying $104 billion.
This is what Credit Suisse refers to as an â€śincreasing headwindâ€ť. In other words, itâ€™s going to costs the banks money. From the report:
Legacy litigation risk has become a primary factor in share-price performance. Our analysis indicates that since October 2013, European banking stocks with legacy litigation risks have underperformed by c25% vs those without. We expect this relative divergence to widen further.
(h/t Paul Murphy)