The legal hits keep on coming for banks
The biggest banks have all been confronted with the need to dramatically hike their reserves against expected litigation costs.
These reserves are high enough now that the idea of reversals was discussed a bit recently. But we've seen a rash of suits lately, which offer a reminder that banks are still somewhat vulnerable on this. Every single buyer of RMBS, it seems, has a case, and all would be within their rights to get their suits in as a revenue strategy.
The latest: Bank of America was sued by Bank Hapoalim and Principal Life Insurance for fraud and breach of contract over the sale of almost $960 million worth of MBS. Meanwhile, Principal Life sued Bank of America over its investment in $239 million worth of such securities. Principal Life also sued JPMorgan Chase & Co. in the same court earlier this month over $114.9 million worth of RMBS. JPMorgan Chase was also sued by recently by DZ Bank, which is seeking about $402 million in damages.
That was the second suit filed this year by DZ Bank against JPMorgan in New York State Supreme Court "over the investments, pools of home loans securitized into bonds that were a central part of the housing bubble that helped send the U.S. into the biggest recession since the 1930s," reports Bloomberg.
Other litigants will emerge. The notion that banks resemble tobacco companies in terms of litigation seems more apt with every suit.