Big banks brace for further litigation

by Ryan Smith21 Jan 2014
Several of the country’s biggest banks have pigeonholed extra cash to cover potential litigation costs in the wake of JPMorgan’s record $13bn mortgage settlement.

The government has said that it will use the settlement – the largest of its kind in history – as a template for future settlements with other banks. The enormity of JPMorgan’s payout served as a wake-up call for other banks, which realized their legal costs were likely to be higher than initially anticipated, according to a Reuters report.

Goldman Sachs, Bank of America, Morgan Stanley and Citigroup have all pumped up their litigation reserves by hundreds of millions of dollars, Reuters reported. The four banks are all facing federal investigations into their mortgage activities.

The government’s Residential Mortgage Backed Securities Working Group, which was formed in 2012 to investigate and prosecute mortgage cases, has been looking into questionable mortgage-backed securities issued in the years prior to the financial crisis, according to Reuters. And while big banks have already taken several hits this year in the form of settlements, it appears there’s still further litigation to come.

“Where the industry thought they were at the tail end of it there's reason to wonder whether there's a whole new round of broader suits that may be brought,” Joshua Rosner, a managing partner at research firm Graham Fisher & Co, told Reuters.

Indeed, the government has already issued its own warning that more litigation is coming. Attorney General Eric Holder said last month that the Justice Department would be bringing more mortgage fraud cases against large banks this year.

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