Bank’s possible litigation losses rise up to $1.7 billion in Q3
The bank disclosed in its most recent quarterly securities filing posted Thursday that it is in discussions with the Residential Mortgage-Backed Securities Working Group of the Financial Fraud Enforcement Task Force. That group, which includes the Justice Department, has levied billions of dollars in fines on other big U.S. banks, including a $16.65 billion payout from Bank of America Corp. BAC, +0.00% and $13 billion from J.P. Morgan Chase & Co. JPM, -0.44%
The RMBS task force has raised “potential theories of liability” with Wells Fargo WFC, +0.22% related to certain mortgage practices, according to the bank’s filing. The bank had said in previous filings that it was responding to requests for information from government agencies related to the origination, underwriting and securitization of certain mortgages. The bank has produced documents for the Justice Department, but people familiar with the matter have previously said the process wasn’t progressing.
Wells Fargo didn’t disclose by how much it had increased litigation reserves during the quarter. It did say, though, that its range of possible litigation losses in excess of its “probable and estimable losses” rose to as much as $1.7 billion in the third quarter, up $700 million from the prior period. The bank said this increase was due to “a number of matters.”
The company noted that the Federal and state government agencies, including the United States Department of Justice, continue investigations or examinations of certain mortgage related practices of Wells Fargo and predecessor institutions. Wells Fargo, for itself and for predecessor institutions, has responded, and continues to respond, to requests from these agencies seeking information regarding the origination, underwriting and securitization of residential mortgages, including sub-prime mortgages. This includes discussions with various government agencies that are part of the RMBS Working Group of the Financial Fraud Enforcement Task Force in which potential theories of liability have been raised.
A number of big, European banks are also in negotiations with the Justice Department related to how mortgages were bundled and sold.