Wall Street’s biggest banks may be forced to cough up more than $14 billion to settle regulatory probes and lawsuits over the growing interest-rate scandal that has upended top brass at UK bank giant Barclays Capital, one bank analyst told The Post.
“There are going to be big numbers,” said Brad Hintz, with Sanford Bernstein, who is preparing a report on the Libor scandal’s fallout on the banks.
Hintz noted that the total costs could be twice the $7.2 billion that Enron agreed to pay to defrauded investors in 2008, seven years after the energy company went bankrupt.
Barclays already agreed to pay $450 million in penalties to US and UK regulators.
Earnings and book value of the 11 large banks caught up in the scandal may decline even more than a total of $14 billion, according to a second report, from Morgan Stanley.
Earnings in 2012 could be reduced by 2 percent to 33 percent for Bank of America, Citigroup, JPMorgan Chase, Credit Suisse, UBS, Deutsche Bank, Société Generalé, RBS, HSBC and Lloyds, according to the Morgan Stanley report.
The Morgan Stanley report is the most detailed accounting of the possible fallout from the regulatory probes in the UK and US and from the expected wave of lawsuits.
The probes are focusing on whether banks colluded to lower a key interest rate, known as the London interbank offered rate, or Libor, to more favorable levels as early as 2005 and during the height of the credit crisis in 2008-9.
Libor helps determine interest rates on some $360 trillion in financial instruments, including home mortgages.
While the banks are sure to pay some legal settlements, legal experts say that plaintiffs, including Charles Schwab and the City of Baltimore, which have filed lawsuits, face high hurdles in winning their cases.
For one, plaintiffs are required to prove that the financial institutions involved actually worked together to rig the Libor market.
Accusers also must demonstrate that they lost money as a direct result of the falsified rates.
“You have to identify that a specific bank, on a specific day or days at a specific rate, lost you money,” said one veteran securities lawyer, who could not speak on the record because his firm is working on behalf of defending banks on Libor lawsuits.
Adding to the challenge of identifying which bank committed fraud is the complicated art of calculating Libor.
The banks submit rates, at which they estimate they can borrow. The highest rates and lowest rates are thrown out and the average of the remainder is used to derive Libor.
Most expect that any litigation will play out over four or five years.
Officials at banks like JPMorgan say they are not expecting to face a big dent in their balance sheets due to any Libor litigation.
More clarity may be coming when JPMorgan reports its results this morning.