When we look back at the year 2012, we may one day consider it the year of bank lawsuits. There have been literally thousands of lawsuits filed against the nation’s largest banks. That lawsuits have stemmed from a myriad of issues that arose during and since the financial crisis, and have occurred in record proportions.
The lawsuits cover everything from laundering money for Iran, to manipulating interest rates paid by consumers and businesses, to improperly foreclosing on homeowners. In total, the sum of these misdeeds as have cost the banks a record of more than $10.7 billion in fines this year. It is highly likely this trend will continue in 2013, as regulators continue exploring issues like the LIBOR rigging scandal that cost Barclays (NYSE: BCS) Chief Bob Diamond his job.
Slightly more than half of the fines were related to improper mortgage practices, and most of that money was earmarked to provide help to the victims. For example, $1.5 billion of a broader mortgage settlement with major home lenders announced in February was used to set up a fund to pay borrowers whose homes were improperly sold or taken in foreclosure. Another $3.5 billion of that settlement went to state and federal governments to fund housing counselors, legal aid and other similar public programs determined by the state attorneys general. The well regarded Wells Fargo (NYSE: WFC) paid another $175 million in a July settlement to help minority homeowners who were sold subprime loans when they qualified for less-expensive traditional mortgages.
Some might wonder where all this fine money goes to, since after all, it is the consumer who essentially were duped by the firms during these practices. It seems it is a highly profitable business for regulators, with nearly half the fines — more than $5 billion — ending up in government coffers, mostly the U.S. Treasury’s general fund. Thomson Reuters estimates that the financial sector stocks in the S&P 500 earned $167.7 billion in profits this year, up 21% from 2011. That doesn’t include earnings from major foreign banks, including UBS and HSBC, that paid some of the biggest fines. The stocks of the major banks that were hit with major fines are all up at least 20% this year, despite the large checks they had to write.
While the fines haven’t seemed to dampen the stock prices, public perception of the firms continues to be a challenge – shrugging off years of perceived fraud will be difficult for any firm to overcome.
