Lawyers, Banks and Money

Expenses will continue to drop as long as they can keep their noses clean.

Imagine there's no bank fines. It's easy if you try. No litigation expenses below us. Above us only sky-high price-to-tangible-book-value ratios. 

OK, maybe it's not that easy to imagine because these bankers keep getting in trouble. You have to laugh at the latest case making the headlines just for the sake of irony: a compliance worker at Goldman Sachs hired to develop surveillance systems to detect market manipulation and insider trading was accused by the SEC of using his access to find M&A deals in progress and rack up hundreds of thousands of dollars in gains in accounts belonging to himself and a relative. 

If the SEC is right, the outcome will most likely result in a financial hit for the employee, not Goldman itself, but it is another reminder of how difficult it is for big banks to keep the rank-and-file from wetting their beaks when the opportunity arises. Even shepherds hired to guard the sheep get a hankering for mutton some times, it seems. 

There is something to be thankful for these days, however, if you're an investor in banks. After booking a total of $156 billion in legal and liability costs since 2008, the bulk of the charges may be over for the six top U.S. banks, according to a new analysis from Bloomberg Intelligence's Alison Williams and Elliott Stein. This probably ranks the legal bill for the financial crisis as the worst thing to hit bank profits since, well, the financial crisis. 

Banks' Legal Bills

Six top U.S. banks have racked up more than $156 billion in legal costs since the financial crisis.

Source: Bloomberg Intelligence

For sure, there are more bills to pay: a few assorted mortgage-backed securities settlements are left, as well as potential charges for shenanigans involving Libor, ISDAfix, Treasuries and foreign exchange. But the bulk of the charges stemming from investigations into the financial crisis seem to be in the rear-view mirror. Legal expenses for the six banks were less than $7 billion so far this year, compared with $34 billion in 2014. The median legal cost for global investment banks has been 3 percent of revenue so far in 2015 compared with 10 percent last year, the BI analysis shows. 

This may ultimately allow the firms to return more capital to shareholders, assuming Uncle Sam doesn't make share buybacks illegal. (That's a joke. Maybe.) 

But the real question is what shoes are left to drop? The financial crisis has proved to be quite a revenue source for the government, especially because banks so often tend to be willing to write checks to make the issue go away rather than fight accusations.

In addition to the huge fines and settlements that make up the bulk of the charges mentioned above, even the bailouts themselves have been profitable, despite all the talk of taxpayers paying the penance for Wall Street's sins. The government has realized a profit of more than $64 billion from the rescues of financial and automobile companies during the crisis, according to an analysis by ProPublica.

Taking on banks is a surefire way for ambitious politicians, prosecutors and regulators to burnish their reputations in addition to fattening various federal and state coffers. That source of profit and publicity is likely going to be an attractive target for a long time, so bankers will need to be on their best behavior to keep those bills low. Imagine that.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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    Michael P. Regan in New York at

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    Daniel Niemi at

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