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March 28, 2013

Banks Looking at $100 Billion Legal Tab

Large global banks’ legal tab is poised to soar beyond $100 billion as investors, insurers and municipalities pursue damages for actions tied to the mortgage meltdown, the financial crisis and the rate-rigging scandal.

This month, Citigroup Inc. agreed to pay $730 million to settle claims that it misled investors in four dozen bond and preferred-stock offerings. Deutsche Bank AG cut its 2012 profit target by 60%, citing higher U.S. mortgage-litigation reserves. Government-controlled mortgage investor Freddie Mac sued more than a dozen big banks, claiming they colluded to manipulate the London interbank offered rate, or Libor.

Concerns over banks’ exposure to costly legal action, and whether they have reserved enough to cover costs without reducing future profit, continue to weigh on lenders’ shares. While earnings have been rising, capital cushions are thicker and the U.S. economy is expanding, many of the largest financial firms are trading below their book value, or net worth.”


Read full Wall Street Journal article here

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