Soaring Legal Bills Confront Big Banks

Soaring Legal Bills Confront Big Banks

2/9/2011

America’s largest banks are being confronted by billions of dollars in legal expenses as a result of their part in the financial crisis. Analysts said this can potentially affect their profits and the gains they made in the stock market last year.

The nation’s second largest bank, JPMorgan Chase, revealed that its legal costs in the first nine months of 2010 soared to $5.2 billion. Legal costs could still rise if the bank retains for multibillion-dollar lawsuits by Lehman Brothers Holdings and the trustee in charge of liquidating the firm of Bernard Madoff.

The largest bank in the US, Bank of America, and Citigroup, are also bombarded with lawsuits filed by plaintiffs such as the foreclosed-upon homeowners. Lawsuits were also filed by institutional investors who lost a great deal of money because of mortgage-backed bonds.

Richard Boye, an analyst at Rochdale Securities based in Lutz, Florida, said, “They’re under legal attack.” He also added, “They’re similar to the asbestos or the tobacco industry, and they’re going to be repeatedly sued in the next few years.”

While the third quarter net profit of JPMorgan is at $4.4 billion, up 23% from 2009, it would have been larger if it had not set aside $1.3 billion of pretax income for lawsuits. Aside from this, it also set aside $1 billion for potential mortgage repurchases. Most banks have not turned in their fourth quarter results yet.

According to JPMorgan’s Chief Executive Officer, Jamie Dimon, litigation will not go away. He also said, “It’s becoming a cost of doing business.”

WRITTEN BY:

blakeh@wellsdrew.com