Litigation risk is increasing for European banks

June 4, 2014

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 Suisse’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.

That's what skyrocketing litigation costs looks like

This is what Credit Suisse refers to as an “increasing headwind”. In other words, it’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)

 

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