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The Deutsche Bank headquarters in the financial district of Frankfurt (Bloomberg) |
Europe’s biggest banks, led by Lloyds Banking Group Plc and Deutsche Bank AG, have racked up more than $77 billion in legal costs since the financial crisis, five times their combined profit last year.
Since September 2008, the 18 banks with the highest litigation expenses paid at least $24.9 billion settling lawsuits and probes, set aside $31.5 billion to compensate U.K. clients improperly sold products including mortgage insurance and earmarked $20.9 billion for further penalties, data compiled by Bloomberg show. The sum equates to spending $42 million a day. The total may be higher as many settlements aren’t public.
“Banks aggressively followed a very, very return-oriented business model before the crisis,” Martin Hellmich, a professor of risk management and regulation at the Frankfurt School of Finance & Management, said in a phone interview. “Now they’re paying for the past with settlements and fines.”
European banks are meeting the cost of helping some clients launder money and avoid taxes while cheating others by not disclosing the risk of products designed to protect them from interest rate swings and manipulating markets for their own profit. The penalties come as regulators require firms to set aside more funds to strengthen finances and as executives look for ways to boost shareholder returns even amid lower revenue.
The six biggest U.S. banks, led by JPMorgan Chase & Co. and Bank of America Corp., have allotted more than $100 billion to lawyers, litigation and settlements since the financial crisis, more than they’ve paid in dividends. Last month New York-based JPMorgan reported its first quarterly loss under Chief Executive Officer Jamie Dimon because of surging legal expenses. The bank this week agreed to the final terms of a $13 billion settlement over its sales of mortgage-backed securities.
Payouts in Europe are accelerating. The 18 banks spent a combined $7.7 billion settling lawsuits and regulatory probes last year, more than doubling from 2011. The figures exclude compensation for U.K. mortgage and interest rate derivatives.
The payments have hurt banks’ profit and slowed efforts to build capital. Future penalties may prompt firms to delay boosting dividends or buying back stock, analysts at KBW, a unit of Stifel Financial Corp., said in a report to clients this month. (Bloomberg)
