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Christian Hudspeth

Five Global Banks Drowning In “Postcrisis” Lawsuits

by Christian Hudspeth | Dun & Bradstreet Editor

July 1, 2015 | No Comments »

LawsuitsLarge banks have been suffering from a firestorm of lawsuits in recent years, as cases filed years ago during the financial crisis continue to wrap up … or emerge for the first time. While US banks enjoyed 2% loan growth in 2014, overall profits sunk by 7% for the year as litigation expenses ballooned by $4.4 billion, mainly because of lawsuits filed on “a few large banks,” according to the FDIC’s latest bank report.

These “postcrisis” lawsuits aren’t just partial to US banks. Between the start of the financial crisis and September 2014, banks worldwide paid out a staggering $178 billion in litigation costs — with 65% of that amount coming from US banks and about 35% from European banks, as this WSJ article points out.

And despite the fact that it’s been more than six years since the financial crisis, bank litigation costs have been rising every year, from $3 billion in 2009 to a whopping $60 billion in the first three quarters of 2014 alone (the latest figures available).

But what’s bad for shareholders and bankers may be great news for prospecting lawyers, accounting and tax firms, or any sales or marketing professional looking for opportunities to help banks restore brand image, hire new talent, or merely offer consultation services.

So with that in mind, here are a handful of lawsuit-challenged megabanks that could provide great opportunities for “makeover” business prospecting:

1. JPMorgan Chase

Despite being the largest and most profitable of the five largest banks in the US in 2014, JPMorgan has faced its share of legal problems that have been holding profits down.

In early 2014, for example, JPMC was fined $2 billion (an amount equal to 10% of its profit in 2014) for failure to comply with the Bank Secrecy Act in reporting suspicious activity related to Bernie Madoff’s multibillion-dollar Ponzi scheme from years ago. The charges came a year after the Office of the Comptroller of the Currency (OCC) had ordered the bank to correct deficiencies in its compliance programs.

It didn’t stop with that case. This past May, in a lawsuit jointly involving Barclays, Citigroup, and Royal Bank of Scotland, JPMorgan Chase received a $550 million fine after pleading guilty to US criminal charges involving foreign-exchange rate manipulation and collusion via private online chat rooms, an instance the bank says was tied to “a single trader” who was subsequently fired.

2. Barclays

The UK-based Barclays PLC shows the US isn’t the only country with banks in legal trouble. With a series of lawsuits causing some investors to view Barclays as putting profit above ethics, CEO Antony Jenkins initiated the companywide “Transform Strategy” back in 2013 with a pledge to overhaul Barclay’s high-risk, high-reward culture.

Despite the pledge, Barclays (and three other major banks including Citigroup, JPMorgan Chase & Co. and Royal Bank of Scotland) pleaded guilty to US criminal charges involving foreign-exchange rate manipulation and collusion via private online chat rooms in May 2015. In Barclay’s case, the sales staff was found to be giving clients a “marked-up” rate from the price being offered by the bank’s traders.

These markups were apparently encouraged by management, with one Barclays employee explaining the sales team motto was: “If you ain’t cheating, you ain’t trying.” After the case was settled, Barclays received a $2.4 billion fine — an amount equal to 20 times the bank’s profit in 2014, and the largest amount received among the four banks prosecuted so far in the case.

3. Credit Suisse

Like many of its large international bank competitors, Switzerland’s largest investment bank, Credit Suisse, has also been drowning in litigation charges in recent years. In fact, lawsuit costs got so bad in 2014, they caused the bank’s profit to plunge by 19% for the year.

In May 2014 the bank pleaded guilty in a three-year US tax probe for helping wealthy Americans evade taxes and agreed to pay $2.6 billion in penalties — including $1.8 billion to the IRS, Federal Reserve, and New York’s Department of Financial Services. In a separate $10 billion lawsuit filed in December 2014, New York’s attorney general accused the Swiss bank of fraud in the sale of mortgage-backed securities before the 2008 financial crisis.

The postcrisis lawsuits go on for the bank. Last March, Credit Suisse faced a $3.2 billion lawsuit in Italy from Fondazione Monte dei Paschi di Siena for its advice on the 2008 acquisition of Banca Antonveneta. While the bank has allocated funds for 2015 to deal with future allegations, there’s no telling when the amount of such profit-hampering lawsuits will die down.

4. The Bank of New York Mellon

Boasting more than $28.5 trillion in assets under custody, the Bank of New York Mellon Corporation is the largest custodian of global assets (ahead of State Street and JPMorgan Chase). But big status seems to come with a big bull’s-eye for regulators.

In May the Bank of New York Mellon paid $714 million in settlement charges, an amount equal to roughly one-third of its 2014 profit, after being accused of cheating government pension funds and other investors on foreign-currency exchange trades. Promising clients the best possible rates on currency trades, the bank allegedly gave clients currency-rate prices that were at or near the worst interbank rates to generate more revenue during the 2008 financial crisis.

5. Deutsche Bank

As part of an ongoing, multibank LIBOR manipulation investigation (also involving Barclays Bank, UBS, The Royal Bank of Scotland, Rabobank, and Lloyds Banking Group), Deutsche Bank agreed to pay a staggering $2.5 billion in settlement charges in April — practically usurping the bank’s $2 billion profit in 2014 — to US and British authorities after its London-based subsidiary pleaded guilty to wire fraud in manipulating benchmark interest rates used to price loans and contracts around the world.

Germany’s largest lender had received the largest penalty to date among the banks being investigated in the LIBOR scandal, with 29 Deutsche Bank employees (including managers, traders, and submitters) involved in the scam. Not counting this settlement, the bank had paid nearly £5 billion (roughly $7.4 billion) in fines and settlements since 2012.

The Bottom Line

As regulations tighten around the world and as financial products become more complex, “postcrisis” banking lawsuits will likely continue to be a growing trend in the years ahead. With profits seriously threatened, sales and marketing professionals, prospectors, and entrepreneurs should take heed, looking for business opportunities to help protect bank earnings, improve their brand images, and find ways to help them overcome what’s quickly becoming “the new normal” in banking.

More related articles that you may like: 

The Top 10 Fastest-Growing Banks In America

Troubles Facing The US’s Five Largest Banks

The Winners and Losers When Interest Rates Rise


Christian Hudspeth is a company analyst for Dun & Bradstreet who researches and reports on more than 1,000 banks and financial firms for Hoover’s company database subscribers. Before joining Dun & Bradstreet, Christian was a managing editor, senior financial writer and analyst for a financial publishing company. His financial articles have been featured on MSN Money, Business Insider, Nasdaq.com, and several other well-known online publications. Before he was an editor, Christian worked in the commercial banking industry for seven years.

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