Although most market participants agree that the worst of the financial crisis is over, the ramifications of it continue to be felt across the banking sector.
JPMorgan Chase & Co. 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. During just the first nine months of last year, the firm reported $5.2 billion of legal costs. The costs would rise if the bank reserves for multibillion-dollar lawsuits by Lehman Brothers Holdings Inc. and the trustee liquidating Bernard L. Madoff’s firm. These costs do not just effect JPMorgan though, key competitors similarly feel the crunch. Bank of America (NYSE: BAC), the largest U.S. bank, and Citigroup (NYSE: C) which is third remain under siege by lawsuits attached to the credit crisis. Investors who lost money, and homeowners who were foreclosed on bring a flurry of new lawsuits each day. Jamie Dimon told analysts on an Oct. 13 conference call “Litigation ‘ain’t going away.’ It’s becoming a cost of doing business.”
Richard Bove, an analyst at Rochdale Securities comments “They’re under legal attack. They’re similar to the asbestos or the tobacco industry, and they’re going to be repeatedly sued in the next few years.” Though he still has the firm rated as ‘buy’, profits may be strained in coming years depressing stock price growth. 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. Citigroup, is dealing with 1,713 federal court proceedings according to Bloomberg data, while Wells Fargo, the fourth biggest bank, is involved in 2,758 lawsuits.
At least JPMorgan’s shareholders are more likely to be informed about legal expenses than some other bank investors. The bank, which used the word “litigation” about 50 times in its latest 10-Q filing with the Securities and Exchange Commission, discloses more about lawsuits’ effect on results than Citigroup or Wells Fargo (NYSE: WFC), and has been taking larger reserves than some rivals, according to company filings.
