Big four banks brace for billions in potential losses from lawsuits

Bank of America (BAC), Wells Fargo & Co. (WFC), Citigroup (C) and JPMorgan Chase (JPM) stand to lose billions of dollars this year as the banking giants deal with an onslaught of consumer and investor lawsuits associated with troubled mortgages and foreclosures, among other problems. Charlotte-based Bank of America said expenses tied to litigation and regulatory issues could cost the bank as much as $1.5 billion in 2011. The bank spent more than a $1 billion last year on legal and regulatory issues, according to filings with the Securities and Exchange Commission. The situations putting pressure on the nation’s largest banks involve everything from foreclosure litigation tied to robo-signing practices to investor beefs over auction rate securities sales. Also provisions outlined in the Dodd-Frank Wall Street reforms will effect how mortgage servicers handle troubled loans and mortgage origination. Bank of America said it continues to receive requests from federal regulators for information on foreclosure protocols and mortgages. The bank also faces a number of civil actions related to BofA’s sales of auction-rate securities, including two punitive class actions that were brought by customers of Merrill Lynch. BofA acquired the giant brokerage firm in 2009. Wells Fargo, on the other hand, reported seven class-action suits and several legal actions brought by individual borrowers in the past several months. The cases, which have been popping up in both state and federal court, relate specifically to Wells Fargo’s handling of foreclosure documents, according to SEC files. In its latest SEC filing, Wells Fargo said plaintiffs claim that “the signers (on foreclosure docs) did not have personal knowledge of the facts alleged in the documents and did not verify the information in the documents ultimately filed with courts to foreclose.” Wells Fargo added that “plaintiffs attempt to state legal claims ranging from wrongful foreclosure to deceptive practices to fraud and seek relief ranging from cancellation of notes and mortgages to money damages.” JPMorgan Chase agreed to pay $25 million to settle with the New York Attorney General and other regulatory agencies that raised issues dating back to 2008 over securities violations related to the bank’s sale of auction-rate securities, according to SEC filings. JPMorgan also cited other pending litigation as a business risk, including a lawsuit brought by Deutsche Bank (DB) against the Federal Deposit Insurance Corp. for breaches of mortgage securitization agreements that allegedly occurred when the FDIC took over the failed Washington Mutual. JPMorgan isn’t named as a party to the suit, but since it did acquire the assets of WaMu in September 2008, the complaint suggests JPMorgan may have assumed certain liabilities. Citigroup could lose upward of $4 billion in addition to what is already set aside on litigation and reforms, The Wall Street Journal reported Friday. While the banks brace to pay out on federal penalties and in lawsuits, regulators are proposing a $20 billion settlement with mortgage servicers to help underwater borrowers and to assist with loan modifications. Write to Kerri Panchuk.

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