Citigroup, Credit Suisse brace for possible wave of lawsuits
22.01.2003 2.25 pm
LONDON - Banking groups Credit Suisse and Citigroup have set aside hundreds of millions of dollars against a potential tide of litigation from disgruntled investors and warned that these provisions might not be enough.
Analysts calculated that if other major investment banks were to make provisions on the same scale, the industry could take a hit of more than US$3 billion ($5.5 billion) arising from investor lawsuits over biased stock research and other issues.
"If you add it all up you get to about US$3 billion dollars potentially in reserves for litigation," said Piers Brown, banking analyst at Commerzbank Securities.
US regulators charged major investment banks with misleading investors with slanted stock research, and are expected to face a flood of civil litigation.
Credit Suisse, parent of investment bank Credit Suisse First Boston, made a US$450 million provision against private lawsuits, which is in addition to the US$150 million already set aside to cover a settlement with US regulators.
In the United States, Citigroup -- parent of Salomon Smith Barney -- set aside US$1.3 billion for a settlement with US regulators over stock research and related civil litigation, plus Enron-related lawsuits.
Both banks warned that the provisions could go higher depending on what legal action they might face.
Ten investment banks including CSFB and SSB last month agreed to pay US$1.4 billion to settle charges by US regulators that they slanted research to win investment banking business and doled out shares in "hot" IPOs to favoured clients during the internet stock boom.
The banks reached a settlement with New York Attorney General Elliot Spitzer and other regulators in December after months of investigations. But the banks could still face litigation from individual investors on top of the regulatory settlement so the costs keep rising.
Spitzer is expected to make the evidence he collected in his probe available to the public later this month, which could be used as ammunition in investor lawsuits against the banks.
In December, CSFB agreed to pay US$150 million in fines and US$50 million to fund independent stock research and Citigroup agreed to pay US$400 million.
The two banks have now made provisions against litigation at roughly three times their fines, which could be taken as a benchmark by the other banks.
"This seems to be a general benchmark," said David Williams, banking analyst at Morgan Stanley. "Whether it will prove to be adequate -- and it could prove more than adequate -- is very difficult to say."
The impact of any litigation, which could drag on for months or even years, remains unquantifiable.
Analysts said banks with big retail brokerage networks, which include Citigroup, Merrill Lynch and Morgan Stanley, could be more vulnerable than those with mainly institutional brokerage operations.
"Spitzer is due to release all the evidence he has collected sometime this month, which could be used by anybody wanting to make class action suits against the banks," said Brown. "There's clearly quite a big risk that that's going to happen."
Citigroup, Credit Suisse brace for possible wave of lawsuits
22.01.2003 2.25 pm
LONDON - Banking groups Credit Suisse and Citigroup have set aside hundreds of millions of dollars against a potential tide of litigation from disgruntled investors and warned that these provisions might not be enough.
Analysts calculated that if other major investment banks were to make provisions on the same scale, the industry could take a hit of more than US$3 billion ($5.5 billion) arising from investor lawsuits over biased stock research and other issues.
"If you add it all up you get to about US$3 billion dollars potentially in reserves for litigation," said Piers Brown, banking analyst at Commerzbank Securities.
US regulators charged major investment banks with misleading investors with slanted stock research, and are expected to face a flood of civil litigation.
Credit Suisse, parent of investment bank Credit Suisse First Boston, made a US$450 million provision against private lawsuits, which is in addition to the US$150 million already set aside to cover a settlement with US regulators.
In the United States, Citigroup -- parent of Salomon Smith Barney -- set aside US$1.3 billion for a settlement with US regulators over stock research and related civil litigation, plus Enron-related lawsuits.
Both banks warned that the provisions could go higher depending on what legal action they might face.
Ten investment banks including CSFB and SSB last month agreed to pay US$1.4 billion to settle charges by US regulators that they slanted research to win investment banking business and doled out shares in "hot" IPOs to favoured clients during the internet stock boom.
The banks reached a settlement with New York Attorney General Elliot Spitzer and other regulators in December after months of investigations. But the banks could still face litigation from individual investors on top of the regulatory settlement so the costs keep rising.
Spitzer is expected to make the evidence he collected in his probe available to the public later this month, which could be used as ammunition in investor lawsuits against the banks.
In December, CSFB agreed to pay US$150 million in fines and US$50 million to fund independent stock research and Citigroup agreed to pay US$400 million.
The two banks have now made provisions against litigation at roughly three times their fines, which could be taken as a benchmark by the other banks.
"This seems to be a general benchmark," said David Williams, banking analyst at Morgan Stanley. "Whether it will prove to be adequate -- and it could prove more than adequate -- is very difficult to say."
The impact of any litigation, which could drag on for months or even years, remains unquantifiable.
Analysts said banks with big retail brokerage networks, which include Citigroup, Merrill Lynch and Morgan Stanley, could be more vulnerable than those with mainly institutional brokerage operations.
"Spitzer is due to release all the evidence he has collected sometime this month, which could be used by anybody wanting to make class action suits against the banks," said Brown. "There's clearly quite a big risk that that's going to happen."
Citigroup, Credit Suisse brace for possible wave of lawsuits
22.01.2003 2.25 pm
LONDON - Banking groups Credit Suisse and Citigroup have set aside hundreds of millions of dollars against a potential tide of litigation from disgruntled investors and warned that these provisions might not be enough.
Analysts calculated that if other major investment banks were to make provisions on the same scale, the industry could take a hit of more than US$3 billion ($5.5 billion) arising from investor lawsuits over biased stock research and other issues.
"If you add it all up you get to about US$3 billion dollars potentially in reserves for litigation," said Piers Brown, banking analyst at Commerzbank Securities.
US regulators charged major investment banks with misleading investors with slanted stock research, and are expected to face a flood of civil litigation.
Credit Suisse, parent of investment bank Credit Suisse First Boston, made a US$450 million provision against private lawsuits, which is in addition to the US$150 million already set aside to cover a settlement with US regulators.
In the United States, Citigroup -- parent of Salomon Smith Barney -- set aside US$1.3 billion for a settlement with US regulators over stock research and related civil litigation, plus Enron-related lawsuits.
Both banks warned that the provisions could go higher depending on what legal action they might face.
Ten investment banks including CSFB and SSB last month agreed to pay US$1.4 billion to settle charges by US regulators that they slanted research to win investment banking business and doled out shares in "hot" IPOs to favoured clients during the internet stock boom.
The banks reached a settlement with New York Attorney General Elliot Spitzer and other regulators in December after months of investigations. But the banks could still face litigation from individual investors on top of the regulatory settlement so the costs keep rising.
Spitzer is expected to make the evidence he collected in his probe available to the public later this month, which could be used as ammunition in investor lawsuits against the banks.
In December, CSFB agreed to pay US$150 million in fines and US$50 million to fund independent stock research and Citigroup agreed to pay US$400 million.
The two banks have now made provisions against litigation at roughly three times their fines, which could be taken as a benchmark by the other banks.
"This seems to be a general benchmark," said David Williams, banking analyst at Morgan Stanley. "Whether it will prove to be adequate -- and it could prove more than adequate -- is very difficult to say."
The impact of any litigation, which could drag on for months or even years, remains unquantifiable.
Analysts said banks with big retail brokerage networks, which include Citigroup, Merrill Lynch and Morgan Stanley, could be more vulnerable than those with mainly institutional brokerage operations.
"Spitzer is due to release all the evidence he has collected sometime this month, which could be used by anybody wanting to make class action suits against the banks," said Brown. "There's clearly quite a big risk that that's going to happen."
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