Legal Costs Keep 2013 Bank Profits From All-Time High
If any banking analysts are looking for a sign that the massive blight the financial crisis left on the financial sector’s balance sheets has passed, they need look only as far as the combined profit of the six largest banks in the United States. Together, JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), Goldman Sachs (NYSE:GS), and Morgan Stanley (NYSE:MS) generated more earnings last year than in any year since 2006.
That milestone was hit even though these six banks paid around $18.7 billion to settle allegations of financial misdeeds ranging from violations of the Banking Secrecy Act to misrepresentations of the quality of mortgage-backed securities sold to investors, the reckless manipulations of trading strategies, and the sale of toxic mortgages to government-owned financiers.
Net income for JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley rose 21 percent to $74.1 billion, according to analyst estimates compiled by Bloomberg. A combination of cost-cutting measures, the roaring stock market rally, and the dissipation of crisis-era burdens like bad loans made 2013 a profitable year for the industry.
Only the $84.6 billion earned by these six banks in 2006 – when the U.S. housing bubble was at its peak — ranks higher. If ignoring the litigation and other legal expenses were possible, U.S. banks would have topped their previous record this year. Legal costs were 76 percent higher in 2013 than they were in 2012, making last year the most expensive year for banks in terms of legal costs since at least 2008.