Banks continue to face the ghosts of mortgage related issues, as judged from SEC filings that require a bank to disclose the potential litigation losses that may exceed its legal reserves.
Wells Fargo & Company (NYSE:WFC)’s latest quarterly filing reveals that “reasonably possible potential litigation losses” that were in excess of the legal reserves were $1.2 billion, higher by 30 percent over the previous quarter. Wells Fargo is also facing legal claims, on account of mortgages it had sold to investors, but which it is taking back, following default by the borrowers. These claims, it disclosed Tuesday, could exceed its reserves, in this regard, by $2.6 billion, higher by 13 percent over the last quarter. On yet another front, the bank had to make a provision last month of $669 million on account of mortgage-repurchase demands from Fannie Mae and Freddie Mac, which was a 56 percent increase on the last quarter. The company admitted that the government is still investigating its mortgage practices.
Meanwhile, Bank of America Corp (NYSE:BAC) was sued at the end of July by 15 institutional investors in Countrywide Financial Corp, alleging that the mortgage lender abandoned prudent lending practices, under-provided for bad loans, and artificially boosted earnings. Bank of America bought Countrywide for $2.5 billion and has been assailed by legal problems relating to the lender since that date.
The investors suing Bank of America Corp (NYSE:BAC) include BlackRock, Inc. (NYSE:BLK), the California Public Employees’ Retirement System (CalPERS), T.Rowe Price Group, Inc. (NASDAQ:TROW), TIAA-CREF, and the other plaintiffs, including some in Europe. These investors opted out of a court-approved settlement of $624 million last February, a part of an overall $8.5 billion settlement that Bank of America entered in a bid to end litigation in connection with bad Countrywide loans. Bill Halldin, a Bank of America spokesman, said at the time: “It is unfortunate that select investors chose to opt out of a fair and equitable agreement to settle these issues. We intend to vigorously defend these claims.”
Apart from mortgage litigation, banks are also facing legal and regulatory flack over scandals, such as the LIBOR rate-fixing scandal, where massive penalties and settlements are being paid out. Standard Chartered PLC (LON:STAN) (LON:STAC) has just been accused of helping money-laundering activities, by concealing transactions worth $250 billion relating to Iran. In other issues, some banks have had to settle with merchants over price fixing in credit card processing.