Indeed, since 2009US and European bankshave been forced to foot the bill for over $230bn in fines and legal costs.
However, analysts atMorgan Stanleynow believe that these banking giants are facing yet another wave of new litigation costs, which could amount to more than $50bn. Whats more, Morgans analysts believe that other European banks are facing an additional $70bn during the next two years
These fines relate to alleged manipulation of benchmark interest rates, manipulation of foreign exchange markets, mis-selling of mortgages and mis-selling of payment protection insurance.
Broken down, its believed that RBS will have to payout an additional $10.6bn in fines, on top of the $12.6bn alreadypaid or provisioned for. Barclays is in line foradditional fines of $8.3bn, HSBC $7.7bn and Lloyds could be on the hook for a further $6.1bn.
For Lloyds and RBS in particular, these fines are concerning. The two banks are struggling to bolster their capital ratios and further fines will restrict their ability to bolster their capital cushions.
Lloyds is in an especially dangerous position, as the bank is trying to receive permission to restart dividend payments from the Prudential Regulation Authority. Additional fines, and the use of reserves to pay litigation costs could restrict the banks ability to restart payments.
Lloyds and RBS only just passed the Bank of Englands latest set of stress tests thanks tolast-minute plans to strengthen their balance sheets.
If the two banks are forced to pay out billions in additional fines and legal costs, their ability to grow earnings and in Lloyds case, reintroduce a dividend payout, is going to be severely reduced.
Barclays and HSBC are facing similar pressures, although these two banks are better positioned than their smaller peers. For example, both HSBC and Barclays sailed through the BoEs stress tests at the end of last year and both banks have been working hard to bolster capital ratios in recent years.
However, these fines could restrict HSBCs and Barclays ability to pay, and increase their dividends payouts. This is exactly what Neil Woodford warned of when he sold his holding in HSBC last year citingfine inflation.
So, if you’re a dividend investor holding HSBC, or Barclays, it might be time to sell up and find a company with better prospects elsewhere. To help you find other dividend stocks, the Motley Fool’s top analysts have put together this free, no obligation report designed to help you“Create Dividends For Life”. The report contains all the information you need to build a dividend portfolio and steady income for the long-term.
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