European banks have enough trouble staying profitable at the best of times, but there’s another wave of fines and litigation coming for their bottom line.
A note from Huw Van Steenis and his team at Morgan Stanley estimates the top 20 EU banks could be hit for another $US50 billion (£32 billion) in penalties for bad behaviour by 2017.
US banks are through the worst and have about $US14 billion (£9 billion) of legal costs in the pipeline.
Van Steenis says the total bill, when all past and future fines for European banks are added up, could top a whopping $US171 billion ($US109 billion). This is about the GDP of Kuwait, according to IMF figures.
Our base case is that they will incur a further ~30%, or ~$US50bn, by 2017, albeit with a wide range. We expect to see a narrower outcomes range for Europeans in next 12 months as large mortgage and sanctions cases are settled, along with clarity on the Plevin case in the UK and civil actions.
Here’s the chart comparing the US and EU banking sectors:
Banks have been hit with a wave of fines for all sorts of bad behaviour since the 2008 financial crisis, from rigging currency markets to manipulating benchmark interest rates and mis-selling insurance products.
Just last month Deutsche Bank reported an increase in legal costs to €1.2 billion (£860 million) from €757 million (£540 million) last year, prompting new CEO John Cryan to call them “unacceptably high.”