Credit: Shutterstock photoLegal issues pertaining to past business misconduct continue to trouble Wall Street banking giants. As regulators beef up their investigations, more settlements are likely to emerge. Per a recent report by The Wall Street Journal , around 9 global banks may reach settlements pertaining to soured mortgages in the near term.
The U.S. Department of Justice (DOJ) may reach settlements with The Goldman Sachs Group, Inc. GS and Morgan Stanley MS later this month while several other banks including Wells Fargo & Company WFC , Barclays PLC BCS , The Royal Bank of Scotland Group plc RBS , UBS Group AG UBS , Deutsche Bank AG DB , Credit Suisse Group AG CS and HSBC Holdings plc HSBC are likely to settle in the upcoming months. Banks have been accused of selling flawed mortgage-backed securities that nosedived in value during the financial crisis.
It is expected that banks may settle individually rather than as a group. Depending upon the degree of misconduct, the settlement amount may range from a few hundred million dollars to $2-$3 billion for each bank. However, discussions are still at preliminary stages.
Notably, in February, Goldman revealed in its annual filing, the probability of facing a civil lawsuit as a regulatory probe has "preliminarily concluded" that the company violated federal law regarding its underwriting, securitization and sale of residential mortgage-backed securities (RMBS). Goldman also mentioned that as part of the RMBS Working Group investigation, in Dec 2014, it has received a letter from the U.S. Attorney for the Eastern District of California, which indicated the possible civil action. The company stated that it was offered an opportunity to respond to the conclusion.
Morgan Stanley in February, agreed to pay $2.6 billion to the DOJ to settle claims relating to the sale of RMBS. The deal is yet to be completed.
Notably, authorities have reached settlements with three major banks - Citigroup Inc. C , JPMorgan Chase & Co. JPM and Bank of America Corp. BAC . It was alleged that the banks sold shoddy mortgage backed securities to investors without disclosing the quality of the securities. In Nov 2013, JPMorgan reached a $13 billion settlement. This was followed by Citigroup's mortgage accord of $7 billion in Jul 2014, while BofA announced a $17 billion accord in Aug 2014.
Regulatory authorities are determined to put forward a landmark judgment to terminate wrong practices in the future, bring justice to the sufferers and punish the wrongdoers. While the settlement of such issues will put to rest a long-drawn investigation and bring reprieve to the banks, these also are likely to come as a huge blow to banks' financials.
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