Global investment banks could face almost $100 billion in civil settlements from investigations into interest-rate and foreign-exchange manipulations, analysts at Stifel Financial Corp.’s KBW unit said.
Probes of the London interbank offered rate, or Libor, could cost $46 billion and currency trading inquiries could trigger another $26 billion, analysts led by Andrew Stimpson said today in a note. That’s in addition to settling claims over faulty mortgages with the Federal Housing Finance Agency, which could be $24 billion, the analysts wrote.
While mounting litigation costs at firms including Deutsche Bank AG and Barclays Plc may not require capital raises, financial firms might delay boosting dividends or buying back stock, especially in the U.S., the analysts wrote. Lenders have spent $44 billion on legal matters since last year’s first quarter, the analysts said.
“Litigation costs are here to stay and are part of the fabric of investment banking costs,” the analysts wrote in the note, adding that the total could be driven even higher by other claims tied to the U.S. mortgage market and Bernard Madoff’s Ponzi scheme. “Banks have so far been keen to reach a settlement with regulators or governments quickly, but the more numerous civil cases are potentially more financially damaging,” they wrote.
As of midyear, the six biggest U.S. banks had already piled up $103 billion in legal costs since the financial crisis, according to data compiled by Bloomberg.
Traders at some banks may have pooled information about their positions and used client orders to move benchmarks in the $5.3 trillion-a-day currency market, Bloomberg News reported in June. Regulators are also investigating whether financial firms colluded to rig Libor, which banks use to gauge rates on loans to each other and as a baseline to determine what they’ll charge other borrowers.
The analysts said they favor Paris-based Societe Generale SA, and JPMorgan Chase & Co., the New York-based lender beset by criminal and civil probes. “The balance sheet is more than strong enough to take it,” they wrote.