Banks face legal charges from the past
Rabobank is just the last bank to have reached a record settlement of $1.07 billion for
alleged misconduct in the libor and other interest rates manipulation scandal.
Barclays is also facing a $700m charge after losing the appeal with hedge fund diamond capital.
Legal charges have also impacted Q3 results of UBS, which now faces
higher provision requirements from the FINMA, and Deutsche Bank that had to increase
litigation reserves of 1.2 billion to 4.1 billion Euro. The situation of
Deutsche Bank is different as it did not yet reach a settlement with the regulators.
This uncertainty over possible further legal charges makes it difficult for
investors to assess the real litigation risk faced by some of these banks.
Banks are therefore going to face higher legal charges and might be required by
regulators, like in the case of UBS, to hold more capital.
Investors can benefit from this volatility in the sector by paying attention to
some unique situations in the industry like:
- Swiss banks maintain a competitive advantage as the regulator moved very quickly
after the crisis to increase capital requirements and do not face the...