European banks face US$52b in litigation costs: Morgan Stanley

[LONDON] Royal Bank of Scotland and Barclays may have to pay some of the biggest bills from an estimated US$52 billion in fines and other litigation costs facing Europe's banks in the next two years, Morgan Stanley analysts said.

US and European banks have paid US$230 billion in litigation costs since 2009 and could pay out another US$70 billion by the end of 2016, mostly from the 20 largest European banks, they said in a research note on Tuesday.

European banks have paid out about US$104 billion so far and the US$52 billion they still have to pay, much of it related to foreign exchange trading and U.S. mortgage mis-selling, could restrain how much they pay in dividends, the analysts said.

The fines and compensation in the last five years are related to practices that include alleged manipulation of benchmark interest rates and mis-selling of mortgages in the United States and insurance in Britain.

Regulators fined six banks US$4.3 billion in November after traders tried to manipulate foreign exchange markets. "FX settlements underscore (the) need to prove culture and business models are transformed before returns and payouts can rise," analyst Huw van Steenis said in a note.

RBS, majority owned by the UK government, will have to pay another US$10.6 billion on top of the US$12.6 billion already paid or provisioned for, Morgan Stanley estimated.

The analysts predicted Barclays could have to pay another US$8.3 billion, HSBC US$7.7 billion, Lloyds US$6.1 billion and Germany's Deutsche Bank US$5.1 billion.

They estimated that future litigation costs for European banks would include US$7.5 billion related to alleged foreign exchange rigging, US$6.5 billion from interest rate benchmarks Libor and Euribor and US$9.4 billion related to US mortgages.

US banks are more advanced in their litigation payouts, the analysts said. Five major US banks have paid out US$128 billion and are forecast to incur another US$18 billion.

JPMorgan analysts this week also said British banks faced additional litigation provisions. They forecast the big four banks faced 15.1 billion pounds ($22.8 billion) of extra provisions for litigation in the next two years, to add to 11.6 billion pounds of reserves they already have set aside for such payouts.

REUTERS