Since the financial crisis first hit a dirty little pattern has emerged among some of the US's most successful banks. Here's how it goes:
One of the "too-big-to-fail" institutions announces that it's agreed to pay a king's ransom to settle accusations of wrongdoing – you know, the kind that contributed to the crisis in the first place: defrauding investors, hoodwinking customers, or otherwise behaving in crooked and reprehensible ways. The announcement always includes a line insisting the banks "deny any wrongdoing". Bank officials finish by saying they're glad to put the unfortunate distraction behind them.
Behind these kabuki-like performances lies a simple, grim fact: after dozens of investigations, and billions in "settlements", not one heavyweight banker from a major US firm has suffered personal losses or seen the inside of a jail cell.
Miscreant of the Week
Now, it's Bank of America – the second-largest US bank – that's performing the pay-deny-profit ritual. BoA has just agreed to pay $2.43bn to shareholders who accused the company of misleading them over the risks involved in the purchase of investment bank Merrill Lynch in 2008 – as Wall Street was melting down. The plaintiffs, led by large pension funds in the US and abroad, say bank execs concealed the massive losses Merrill Lynch was taking, while paying nearly $6bn in bonuses to Merrill staff as the firm was going under. The Merrill deal has cost Bank of America as much as $35bn.
In announcing the settlement, BoA bosses performed the standard denials, saying they agreed to the settlement solely to put the case in the past. “Resolving this litigation removes uncertainty and risk and is in the best interests of our shareholders,” Brian T Moynihan, the bank’s chief executive, said in a statement.
The BoA case is the latest (and among the biggest) settlement to come out of the Wall Street crash of 2008. But it joins a long line of cases in which bankers – faced with lawsuits from furious investors, cheated customers or rightfully suspicious government regulators – forked over swimming pools full of company cash, all the while proclaiming their innocence.
And the US government often participates in this charade. The Securities and Exchange Commission (SEC), in particular, frequently lets companies get away with paying a settlement while denying they did anything wrong. The agency justifies the practice by saying it's easier and cheaper to get a settlement than to go through protracted litigation with an uncertain outcome.
What is actually going on is that managers of leading banks, accused of scamming and fraud, proclaim their innocence and are let off the hook – while the banks pay a fine that is a fraction of their ill-gotten gains as a "settlement".
In a refreshingly frank ruling last year one federal judge refused to OK a $285m settlement between the SEC and Citigroup in which the government accused the bank of selling clients complicated financial products, then making a killing by betting those same products would lose money. Judge Jed Rakoff said the secret deal didn't give him any way of knowing if its terms were fair to the public. Such agreements, he said, allowed companies to regard the payments as simply "a cost of doing business".
Hall of Shame
Let's take a look at just a few of the more outrageous examples...
Who: Bank of America/Countrywide
How much: $600m
Why: Countryside, owned by BoA, sold hundreds of billions in subprime mortgages that tanked, leaving investors holding the bag.
Denial: "Countrywide denies all allegations of wrongdoing and any liability under the federal securities laws," said Shirley Norton, a spokeswoman for Bank of America. "We agreed to the settlement to avoid the additional expense and uncertainty associated with continued litigation."
How much: $590m
Why: Shareholders say Citi hid the extent of the bank's exposure to credit default swaps backed by toxic subprime mortgages, resulting in billions in losses.
Denial: Citigroup said they agreed to the payout only because it was "a significant step toward resolving our exposure to claims arising from the period of the financial crisis."
Who: Goldman Sachs
How much: $550m
Why: The Securities and Exchange Commission says Goldman created and sold collateralised debt obligations without disclosing that the hedge fund that picked the underlying securities was betting against them.
Denial: Goldman Sachs conceded it had made a "mistake", but "didn’t admit or deny wrongdoing as part of the settlement, according to the court filing."
And those are just a few: there's the nationwide settlement of $26bn for homeowners, the $14bn BoA is paying out over Countrywide Financial, that $175m from Wells Fargo, and... well, you get the idea.
What gets lost in these extortionate numbers is that millions of people's lives were destroyed in the financial crisis, and if any of us were accused of the level of theft and fraud alleged in these cases, we would go down. Until the bankers themselves are held responsible, banks will do a simple cost benefit analysis and the impunity will continue. It's time for better regulation and more federal judges like Jed Rakoff.
Read more: Forbes's Bill Singer unpacks Judge Rakoff's smackdown of the SEC-Citi settlement.
Sources: Reuters, NYTimes, SEC, Avaaz, Huffington Post, Bloomberg, LA Times, Forbes