S&P says mortgage-related cases may cost US banks up to $105bn

City A.M. Reporter
THE largest US banks may need to pay out up to an additional $105bn (£64.5bn) to settle legacy mortgage-related issues, but have a capital cushion that would help them absorb these losses, according to a report by ratings agency Standard & Poor’s.

Eight of the top US banks, including JP Morgan Chase and Bank of America, may have an additional exposure of between $56.5bn and $104bn in potential mortgage-related payouts, the S&P report said.

Banks have faced a new wave of lawsuits as the government investigates their role in the packaging and sale of mortgage-backed securities comprising of bad loans in the run up to the financial crisis. “Notably, mortgage-related litigation has recently gotten a second wind and has expanded beyond investor claims,” S&P credit analysts led by Stuart Plesser wrote in the report.

The largest banks, combined, could have a $155bn buffer to absorb the losses and the banks’ buildup in capital would help them withstand potential legal costs, S&P said.

The increase in litigation reserves significantly weighed on third-quarter profit for US banks, the federal banking regulator said yesterday.