Mortgage-related cases may cost US banks up to $105 bln more:S&P

Reuters

Nov 26 (Reuters) - The largest U.S. banks may need to payout up to an additional $105 billion to settle legacymortgage-related issues, but have a capital cushion that wouldhelp them absorb these losses, according to a report by ratingsagency Standard & Poor's.

Eight of the top U.S. banks, including JPMorgan Chase & CO and Bank of America Corp, may have an additionalexposure of between $56.5 billion and $104 billion in potentialmortgage-related payouts, the S&P report said.

Banks have faced a new wave of lawsuits as the governmentinvestigates their role in the packaging and sale ofmortgage-backed securities comprising of bad loans in the run upto the financial crisis.

"Notably, mortgage-related litigation has recently gotten asecond wind and has expanded beyond investor claims," S&P creditanalysts led by Stuart Plesser wrote in the report.

The government has been seeking to hold firms liable underthe Financial Institutions, Reform, Recovery and Enforcement Actof 1989 (FIRREA), which it uses to recover civil penalties forlosses to federally insured financial institutions.

The largest banks, combined, could have a $155 billionbuffer to absorb the losses and the banks' buildup in capitalwould help them withstand potential legal costs, S&P said.

The increase in litigation reserves significantly weighed onthird-quarter profit for U.S. banks, the federal bankingregulator said on Tuesday.

JPMorgan, the biggest U.S. bank by assets, reported itsfirst quarterly loss under Chief Executive Jamie Dimon inOctober, as it recorded more than $9 billion of expenses tobuild its litigation reserves.

It agreed to pay $4.5 billion earlier this month to settleclaims by investors who lost money on mortgage-backedsecurities.

Bank of America agreed to a $8.5 billion settlement in June2011 with 22 institutional investors. The deal is still awaitingcourt approval.

S&P, however, said that while an unexpected legal expensecould result in the weakening of a bank's business model, it hadconsidered heightened legal issues into its ratings.

"Despite the substantial legal costs already incurred andthe raft of new legal issues, we currently don't expect legalsettlements to result in negative rating actions for the U.S.banks with the largest legal exposure," the S&P report said.

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