The largest six large U.S. banks, including JP Morgan Chase and Bank of America, spent $103 billion on litigation and lawyers since the financial crisis, more than all dividends paid to shareholders in the last five years.
The sum includes money paid to cover claims for damages related to mortgage and foreclosures and is larger than last year’s accumulated profits of the banks. In order to assess these costs, data were used from financial reports of JP Morgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS).
Increased legal bills dissatisfied bankers who were expecting for the spending cuts to compensate the slow growth in revenues. About 40% of the legal costs occurred in January 2013, and banks warn that the trend will continue to maintain this tendency due to new requests from regulators, prosecutors and investors.
This development overshadows the banks’ prospects and the damage could last a few more years.
“They’ve crossed the point of no return when it comes to the effects that these expenses are going to have on earnings,” said Jeffrey Sica, head of Morristown, New Jersey-based Sica Wealth Management LLC. He doesn’t recommend buying bank stocks.
About 75% of the total legal costs were incurred by JP Morgan and Bank of America, according to data from the financial statements of the banks. JP Morgan has allocated $21.3 billion for legal fees and litigation from the beginning of 2008, more than any other bank. Other $8.1 billion was allocated for mortgage buyback.
Five years after the onset of the financial crisis, banks are accused of having misled buyers of mortgage-backed financial instruments, manipulated interest rates used to evaluate loans, and the derivatives and commodities markets.
U.S. Attorney General Eric Holder said this month for the Wall Street Journal that he will bring new cases related to the financial crisis in the coming months.
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