Europe’s biggest banks, led by Lloyds Banking Group PLC and Deutsche Bank AG, have racked up more than US$77 billion in legal costs since the financial crisis, five times their combined profit last year.
Since September 2008, the 18 banks with the highest litigation expenses paid at least US$24.9 billion settling lawsuits and probes, set aside US$31.5 billion to compensate UK clients improperly sold products, including mortgage insurance, and earmarked US$20.9 billion for further penalties, data compiled by Bloomberg show. The sum equates to spending US$42 million a day. The total may be higher as many settlements are not public.
European banks are meeting the cost of helping some clients launder money and avoid taxes, while cheating others by not disclosing the risk of products designed to protect them from interest rate swings and manipulating markets for their own profit.
The penalties come as regulators require firms to set aside more funds to strengthen finances and as executives look for ways to boost shareholder returns even amid lower revenue.
The six biggest US banks, led by JPMorgan Chase & Co and Bank of America Corp, have allotted more than US$100 billion to lawyers, litigation and settlements since the financial crisis, more than they have paid in dividends.
Last month New York-based JPMorgan reported its first quarterly loss under chief executive officer Jamie Dimon because of surging legal expenses. The bank this week agreed to the final terms of a US$13 billion settlement over its sales of mortgage-backed securities.
Payouts in Europe are accelerating. The 18 banks spent a combined US$7.7 billion settling lawsuits and regulatory probes last year, more than doubling from 2011. The figures exclude compensation for UK mortgage and interest rate derivatives.
The payments have hurt banks’ profit and slowed efforts to build capital. Future penalties may prompt firms to delay boosting dividends or buying back stock, analysts at KBW, a unit of Stifel Financial Corp, said in a report to clients this month.
Lloyds, Britain’s largest mortgage lender, and Deutsche Bank, Europe’s biggest investment bank by revenue, bore about 31 percent of the total legal costs, company reports show.
Lloyds is paying more than ￡8 billion (US$13 billion), the most of any bank, to compensate UK customers who were sold loan insurance that did not cover them or that they did not need.
Frankfurt-based Deutsche Bank accounts for 36 percent of the funds that 12 European banks set aside in litigation provisions.
Regulators are investigating whether more than a dozen firms, including Deutsche Bank, colluded to manipulate the London interbank offered rate, or Libor, the benchmark for more than US$300 trillion of securities worldwide.
Barclays PLC, UBS AG, Royal Bank of Scotland Group PLC and Rabobank Group have been fined a total of about US$3.6 billion for rigging Libor.
The European Commission is preparing to hand out penalties in a probe of rate-rigging as soon as next month. HSBC Holdings PLC, Europe’s biggest bank by market value, dropped out of settlement talks after discussions stumbled over liability issues and the possible size of a fine, a person familiar with the matter, who asked not to be identified because the negotiations were confidential, said this month.
Libor probes could cost global investment banks US$46 billion and investigations into manipulating currencies could trigger another US$26 billion, wrote the KBW analysts, led by Andrew Stimpson in London. That is in addition to settling claims over faulty mortgages with the US Federal Housing Finance Agency, which may total US$24 billion, the analysts wrote.
The New Taiwan dollar is on the verge of overtaking the yuan as Asia’s best carry-trade target given its lower risk of interest-rate and currency volatility. A strategy of borrowing the New Taiwan dollar to invest in higher-yielding alternatives has generated the second-highest return over the past month among Asian currencies behind the yuan, based on the Sharpe ratio that measures risk-adjusted relative returns. The New Taiwan dollar may soon replace its Chinese peer as the region’s favored carry trade tool, analysts say, citing Beijing’s efforts to support the yuan that can create wild swings in borrowing costs. In contrast,
Nvidia Corp’s demand for advanced packaging from Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) remains strong though the kind of technology it needs is changing, Nvidia CEO Jensen Huang (黃仁勳) said yesterday, after he was asked whether the company was cutting orders. Nvidia’s most advanced artificial intelligence (AI) chip, Blackwell, consists of multiple chips glued together using a complex chip-on-wafer-on-substrate (CoWoS) advanced packaging technology offered by TSMC, Nvidia’s main contract chipmaker. “As we move into Blackwell, we will use largely CoWoS-L. Of course, we’re still manufacturing Hopper, and Hopper will use CowoS-S. We will also transition the CoWoS-S capacity to CoWos-L,” Huang said
VERTICAL INTEGRATION: The US fabless company’s acquisition of the data center manufacturer would not affect market competition, the Fair Trade Commission said The Fair Trade Commission has approved Advanced Micro Devices Inc’s (AMD) bid to fully acquire ZT International Group Inc for US$4.9 billion, saying it would not hamper market competition. As AMD is a fabless company that designs central processing units (CPUs) used in consumer electronics and servers, while ZT is a data center manufacturer, the vertical integration would not affect market competition, the commission said in a statement yesterday. ZT counts hyperscalers such as Microsoft Corp, Amazon.com Inc and Google among its major clients and plays a minor role in deciding the specifications of data centers, given the strong bargaining power of
TARIFF SURGE: The strong performance could be attributed to the growing artificial intelligence device market and mass orders ahead of potential US tariffs, analysts said The combined revenue of companies listed on the Taiwan Stock Exchange and the Taipei Exchange for the whole of last year totaled NT$44.66 trillion (US$1.35 trillion), up 12.8 percent year-on-year and hit a record high, data compiled by investment consulting firm CMoney showed on Saturday. The result came after listed firms reported a 23.92 percent annual increase in combined revenue for last month at NT$4.1 trillion, the second-highest for the month of December on record, and posted a 15.63 percent rise in combined revenue for the December quarter at NT$12.25 billion, the highest quarterly figure ever, the data showed. Analysts attributed the
RSS