JPMorgan Chase (JPM) may be coming soon to a courtroom near you. And that’s not good news for the second-biggest U.S. bank by assets.
In coming years, the bank is anticiating legal losses could exceed what they have set aside by as much as $4.5 billion.
In 2010, JPMorgan’s legal costs soared to $7.4 billion from $161 million a year in 2009.
Citigroup, Inc. (NYSE: C) said last week that their legal costs could exceed reserves by $4 billion.
The number brings the running toll of litigation-related losses on the biggest U.S. banks to $11.2 billion.
JPMorgan has been among the more conservative U.S. financial institutions in bracing for the wave of legal challenges tied to the subprime meltdown and the mortgage mess.
JPMorgan Chase noted in its annual report filed with regulators that it and its subsidiaries “are defendants or putative defendants in more than 10,000 legal proceedings, in the form of regulatory/government investigations as well as private, civil litigations.”
In fact, in the third quarter of 2010, JPMorgan added $1.3 billion to its reserve for legal costs. At the time, CEO Jamie Dimon said that move wasn’t driven specifically by the foreclosure issues, though he conceded that the bank could pay “some penalties eventually to the AGs.”
Analysts, however, took a different view and reported JPMorgan, which spent years promoting its “fortress” balance sheet, was bracing for a storm despite its public remarks.
“We think JPM is building a war chest against mortgage related litigation,” wrote Morgan Stanley analyst Betsy Graseck.
At the time, JPMorgan conceded that it found cases in which the signers of foreclosure affidavits didn’t personally review underlying loan files, as they are required to. It also said affidavits weren’t properly notarized in some cases.
CEO Jamie Dimon has been saying the subprime fraud fest and the mortgage fiasco will take years to play out, while stressing that full employment for lawyers won’t threaten the bank’s good health.
And of course, just because the bank is looking at a huge legal bill doesn’t mean it has done anything wrong. JPMorgan Chase “believes it has meritorious defenses to the claims asserted against it in its currently outstanding legal proceedings and it intends to defend itself vigorously in all such matters,” the bank says.
