U.S. banks are having money trouble, according to CNBC. The subprime mortgage crisis is resulting in many banks having to pay extra legal fees of more than one hundred billion dollars. Before the financial crisis in 2008, banks sold “residential mortgage-backed securities,” and then homeowners didn’t pay everything they were supposed to pay in 2007, resulting in indefinable debt. Not knowing whether the debt was high risk or low risk, the global financial crisis was triggered and has not since settled.
JPMorgan is paying thirteen billion dollars in settlement arrangements while Bank of America is willing to pay out eight point five billion dollars. Standard and Poor believes banks will have to pay extra, and credit analyst Stuart Plesser stated, “We estimate that the largest banks may need to pay out an additional $55 billion to $105 billion to settle mortgage-related issues.” The major banks included in the report are Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo. Citigroup declined to comment on the issue.
The securities sold have “breached representations and warranties.” The banks should have set aside the fifty billion dollars needed to pay for the proper legal expenses. Plesser also commented, “We already incorporate heightened legal issues into our ratings, and we currently don’t expect legal settlements to result in negative rating actions for U.S. banks.” However, Bank of America does maintain a negative rating.
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