Nov 26 The largest U.S. banks may need to pay
out up to an additional $105 billion to settle legacy
mortgage-related issues, but have a capital cushion that would
help them absorb these losses, according to a report by ratings
agency Standard & Poor's.
Eight of the top U.S. banks, including JPMorgan Chase & CO
and Bank of America Corp, may have an additional
exposure of between $56.5 billion and $104 billion in potential
mortgage-related payouts, the S&P report said.
Banks have faced a new wave of lawsuits as the government
investigates their role in the packaging and sale of
mortgage-backed securities comprising of bad loans in the run up
to the financial crisis.
"Notably, mortgage-related litigation has recently gotten a
second wind and has expanded beyond investor claims," S&P credit
analysts led by Stuart Plesser wrote in the report.
The government has been seeking to hold firms liable under
the Financial Institutions, Reform, Recovery and Enforcement Act
of 1989 (FIRREA), which it uses to recover civil penalties for
losses to federally insured financial institutions.
The largest banks, combined, could have a $155 billion
buffer to absorb the losses and the banks' buildup in capital
would help them withstand potential legal costs, S&P said.
The increase in litigation reserves significantly weighed on
third-quarter profit for U.S. banks, the federal banking
regulator said on Tuesday.
JPMorgan, the biggest U.S. bank by assets, reported its
first quarterly loss under Chief Executive Jamie Dimon in
October, as it recorded more than $9 billion of expenses to
build its litigation reserves.
It agreed to pay $4.5 billion earlier this month to settle
claims by investors who lost money on mortgage-backed
Bank of America agreed to a $8.5 billion settlement in June
2011 with 22 institutional investors. The deal is still awaiting
S&P, however, said that while an unexpected legal expense
could result in the weakening of a bank's business model, it had
considered heightened legal issues into its ratings.
"Despite the substantial legal costs already incurred and
the raft of new legal issues, we currently don't expect legal
settlements to result in negative rating actions for the U.S.
banks with the largest legal exposure," the S&P report said.