Banks Can Absorb $155 Billion in Crisis-Era Litigation: S&P

NEW YORK (TheStreet) -- The nation's largest banks including Bank of America (BAC), JPMorgan (JPM), Citigroup (C), Wells Fargo (WFC), Goldman Sachs (GS) and Morgan Stanley (MS) can absorb at least $155 billion in mortgage related losses, according to ratings agency Standard & Poor's.

The Nov. 25 report by S&P stated that prospective mortgage litigation is one reason for a negative outlook to Bank of America's A- credit rating. Currently, S&P holds a stable outlook on JPMorgan's current credit rating.

Earlier in November, JPMorgan agreed to a $13 billion settlement between it and multiple government authorities that resolved litigation tied to the bank's issuance of mortgage securities leading up to the financial crisis.

New York Attorney General Eric Schneiderman called the settlement a "landmark" deal and said he expected other large banks would follow in JPMorgan's footsteps. Schneiderman also referred to the settlement as a "peace premium" for JPMorgan and commended the bank's willingness to negotiate a deal.

S&P calculated that since 2009 the largest U.S. banks have paid or set aside more than $45 billion for mortgage representation and warranty issues and have incurred roughly $50 billion in combined legal expenses.

A team of analysts led by Stuart Plesser further calculated that warranty reserves at large banks total roughly $60 billion. They estimate that the nation's largest lenders may need to pay out an additional $55 billion to $105 billion to settle mortgage-related issues, some of which is already accounted for in these reserves.

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