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By Steve Slater
LONDON, Sept 15 (IFR) - Five of Europe's biggest banks facea potential collective fine of more than US$17bn related to themis-selling of US mortgages, and some of the penalties could bedished out in the next month, analysts said.
Royal Bank of Scotland faces the biggest potential hit ofUS$9.6bn from the US mortgage issue, according to analysts at JPMorgan on Thursday.
Based on recent settlements with other banks, Deutsche Bankcould be fined US$3bn-$3.5bn and Credit Suisse US$2bn.
UBS faces a settlement of US$2bn, while Barclays is expectedto pay out less than US$1bn, the analysts said. UBS and Barclayshave already paid some fines related to US mortgages, but thereare several authorities looking at the issue, including theFederal Housing Finance Agency (FHFA) and Department of Justice(DoJ).
The fines relate to allegations that banks mis-sold USmortgage-backed bonds during the housing bubble and misledclients about the quality of the assets, which rapidly lostvalue when the mortgage market collapsed.
Banks are keen to settle the issue, and some settlements areexpected to come in October before the US presidential electionin November. The FHFA has pursued 18 banks for wrongdoing, andsettled with many of them already.
But there remains a high degree of uncertainty about thescale of potential fines, and some banks will face renewedconcern about their capital strength if the fines are biggerthan expected, JP Morgan analyst Kian Abouhossein wrote in thenote.
All the banks have significant litigation reserves, whichthey are likely to top up this year.
Deutsche had US$6.2bn of litigation reserves at the end ofJune, and Abouhossein estimated it will top that up by US$2.1bnthis year and US$1.1bn in 2017.
A US mortgage fine of more than US$4bn would be a worry forDeutsche, as it could also face a penalty of US$1bn-$4bn relatedto alleged misconduct in its Russian operations, he said.
"We see capital as key with any material charge creatingcapital at risk potentially leading to similar concerns as wesaw in early 2016," Abouhossein said.
JP Morgan's estimate for RBS includes a payment of US$5bnfor the FHFA, US$3bn for other authorities including the DoJ and US$1.6bn for related lawsuits. The range of analysts'estimates for RBS's potential fine have ranged from US$5bn to asmuch as US$13bn.
RBS had US$10bn of litigation and redress reserves at theend of June and the scale of the US fine will be a key driverfor the investment case for the bank, Abouhossein said.
