Awww….how sad. Poor widdle bankers might not get to give themselves huge bonuses from our taxpayer money – instead the have to pay a stable of high-powered lawyers to fight the massive number of fraud charges they are facing.
From the Miami Herald:
JPMorgan Chase and the biggest U.S. banks face billions of dollars in legal costs related to their role in the financial crisis, threatening their profits and the stock price gains they made in 2010, analysts said.
JPMorgan, the second biggest bank by assets, reported $5.2 billion of legal costs in the first nine months of last year. The costs would rise if the bank reserves for multibillion-dollar lawsuits by Lehman Brothers Holdings and the trustee liquidating Bernard L. Madoff’s firm.
Bank of America and Citigroup are also besieged by lawsuits stemming from the credit crisis, brought by plaintiffs ranging from foreclosed-upon homeowners to institutional investors whose mortgage-backed bonds turned out to be money-losers.
ARRAY OF SUITS
Stephen Cutler, JPMorgan’s in-house lawyer and a former SEC enforcement chief, declined to comment through bank spokesman Joseph Evangelisti.
Bankrupt Lehman is claiming $8.6 billion in collateral from JPMorgan plus tens of billions of dollars in damages, while Madoff trustee Irving Picard is demanding $6.4 billion on the grounds that JPMorgan aided and abetted the biggest Ponzi scheme in history.
Almost nine pages of JPMorgan’s third-quarter 10-Q deal with legal issues. They range from home foreclosure investigations by state officials, to shareholder lawsuits against Bear Stearns Cos., which JPMorgan bought in 2008, to suits from nine different Federal Home Loan Banks demanding compensation for mortgage-backed securities bought from JPMorgan, Bear Stearns or Washington Mutual Bank, also purchased in 2008.
Bank of America reported $1.2 billion in litigation costs for the nine months through Sept. 30, excluding fees to outside law firms. It is suing or being sued in 5,696 legal proceedings in federal court, compared with JPMorgan’s 3,757 lawsuits, according to data compiled by Bloomberg.
Cases for which Bank of America has already reserved some money may wind up costing the bank $400 million to $1.9 billion more than it has set aside, according to its 10-Q. The bank’s nine-month litigation cost of $1.2 billion compared with $477 million a year earlier.
“Our litigation-related expenses are cyclical and are not attributable to a single factor,” said Bank of America spokesman Lawrence Grayson.
Citigroup, now dealing with 1,713 federal court proceedings according to Bloomberg data, tries to settle lawsuits, the bank said in a filing. Shannon Bell, a spokeswoman for Citigroup, declined to comment.
Wells Fargo, the fourth biggest bank, is involved in 2,758 lawsuits, according to Bloomberg data. Mary Eshet, a Wells Fargo spokeswoman, declined to comment.
Dimon articulated the bank’s approach to lawsuits in the October analyst call.
“When we’re wrong, we’re going to settle, and when we’re right, we’re going to fight,” he said.
JPMorgan was the last major underwriter of WorldCom securities to settle suits started in 2002 after an $11 billion fraud sank the long-distance telephone company and sent Chairman Bernard Ebbers to prison.
Banks have leeway under current accounting rules to report litigation costs, or not. Citibank and Wells Fargo don’t give a dollar amount for legal costs; JPMorgan and Bank of America do.
Among other things, the FASB proposal would force banks to report the basis for the legal claim, the amount being claimed and how the company will defend itself. Banks will have to regularly update their estimated loss, and when it might occur; and in cases where they are “reasonably” likely to lose, they have to estimate their possible range of loss and say how much they’ve put aside to pay for it.
JPMorgan currently is fighting Lehman’s lawsuit, which alleges the bank and Dimon helped cause its failure by siphoning off badly needed funds.
JPMorgan twice asked a judge to dismiss the suit, saying it took the $8.6 billion in collateral from Lehman under a contract to clear trades for Lehman’s brokerage. So-called safe harbor laws protect a clearing bank from being sued if a brokerage client fails, the bank said in court papers.
U.S. Bankruptcy Judge James Peck in Manhattan, who hasn’t yet ruled on JPMorgan’s request for dismissal, has at least three times rejected the safe harbor defense in other cases. Bank of America was ordered to return $500 million of deposits to Lehman, and pay $90 million in interest.
Read more here.