Long Summer of Legal Woes Ahead for Banks
June 23, 2014 7:30 AM
Banking lawyers are working overtime as their employers tangle with prosecutors, regulators and private litigants in lawsuits, settlement talks and regulatory crackdowns. Here is your scorecard of legal fights over a host of issues likely to linger.
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Citi's Tense Negotiations
The Justice Department is threatening to file a lawsuit against Citigroup (NYSE:C) for misleading investors about the quality of bonds backed by defective mortgages. Justice wants Citi to pay $10 billion , but Citi's CEO Michael Corbat reportedly is balking at such a large fine.
(Image: Bloomberg News)
Bank of America in the Bullseye
Justice also reportedly wants Bank of America (BAC) to pay up to $13 billion for selling shoddy mortgages sold to investors in the run-up to the financial crisis. Brian Moynihan, B of A's CEO, also thinks the price tag is too steep. A lawsuit may be next.
(Image: Bloomberg News)
BNP's Bilateral Mess
The French bank BNP Paribas is under pressure to plead guilty to criminal charges that it tried to disguise transactions with sanctioned countries such as Iran using a process known as "stripping." Federal and state authorities are said to be seeking a fine of $5 billion to $10 billion. The case has prompted executive departures , raging debates about whether the penalty is too high and whether U.S. authorities are unfairly picking on a foreign bank, and harsh criticism from the French president .
(Pictured: French President François Hollande; Image: Bloomberg News)
Regional Banks' Exposure
It's not just megabanks that face crushing legal bills. Regional banks also face potentially huge losses from pending lawsuits . At least eight of them including Fifth Third Bancorp (FITB), M&T (MTB) and Regions Financial (RF) have raised the ceiling on their potential losses tied to ongoing legal matters.
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Loan Mod Violations
Litigation against banks for failing to properly assess borrowers for the Home Affordable Modification Program is on the rise. Regulators have ramped up investigations of banks, and individual borrowers are increasingly suing under state laws.
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Operation Choke Point
Banks continue to face scrutiny from various federal agencies over their relationships with online payday lenders and other categories of merchants that have been deemed high-risk. The federal probe, known as Operation Choke Point, was recently the subject of a scathing report by the Republican-led House Oversight Committee. Justice, which is spearheading Choke Point, shows no signs of backing down , but the Office of the Comptroller of the Currency recently sought to distance itself from the investigation.
Consumer Payday Lawsuits
Consumers have sued several banks, including BMO Harris, for allegedly helping payday lenders break the law . The lawsuits have survived key tests in federal court and could be combined into a class action.
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Campus Debit Cards
The Department of Education is expected to issue rules soon regarding campus debit cards. Under draft rules released in March, certain fees would be prohibited, marketing activities would be restricted, and the relationships between universities and financial institutions would have to be disclosed. Banks that would be affected by new rules include Wells Fargo (WFC), U.S. Bancorp (USB), PNC Financial Services Group (PNC) and Citigroup.
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Anti-Money Laundering Scrutiny
It's long been clear that banking regulators are focused on banks' compliance with anti-money-laundering rules. Two recent Federal Deposit Insurance Corp. consent orders related to AML programs one involving Bancorp Bank (TBBK) , the other involving Discover Financial Services (DFS) make the point even more obvious.
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Checking Account Denials
The New York Attorney General's Office is investigating how major U.S. banks use credit bureaus such as ChexSystems to screen applicants for bank accounts. At issue is banks' use of these databases to predict whether potential customers present a high credit risk, rather than just as a screen for past fraud. In connection with the New York investigation, Capital One Financial (COF) has agreed to adopt new policies regarding its use of ChexSystems.
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Tax Loopholes
A recent Supreme Court decision casts doubt on a tax shelter that Wells Fargo and other banks have used to save money. Not to worry, legal experts say banks will find other loopholes to avoid taxes.
(Image: Bloomberg News)
