Markets around the world took a hit this week owing to the botch-up in Cyprus that renewed fears of deepening recession in Europe. Repercussions of a proposed levy on all deposits in the island country by the European Union and the IMF as a condition for bailout resulted in a decline in values of all major banks – with European banks bearing the maximum brunt (see Why Is The Crisis In Cyprus Affecting Banks Elsewhere?). The Cyprus government promptly rejected the condition and continues to work frantically towards raising the €10 billion ($13 billion) it needs within days to remain afloat. But the entire incident has shaken investor confidence by introducing doubts about the feasibility of a bailout that bigger peripheral nations like Italy or Spain may need in the future.
To make things worse, manufacturing indices for the Eurozone which were published towards the end of the week also showed a reduction over the previous month – reinforcing the sentiment that the region’s economy is going to remain in doldrums for some more time. Deutsche Bank (NYSE:DB), Barclays (NYSE:BCS) and UBS (NYSE:UBS) have seen their share values fall by at least 5% over the week. Among the U.S. banks, Morgan Stanley (NYSE:MS) lost the most during the period.
Below are some significant events pertaining to major banks that were witnessed over this week.
Earlier this week, Citigroup (NYSE:C) announced that it settled a bond action class suit for a total of $730 million.  The lawsuit which was filed by purchasers of the financial giant’s debt and preferred stock over the 2006-2008 period alleged that Citigroup had misled the investors by misstating and omitting various facts about its actual financial condition in the related disclosures. The lawsuit had dragged on for four years before the settlement was reached.
Citigroup will be paying out the settlement amount from the litigation reserves that it has set aside and will not incur any additional charges as a result of the settlement.
Credit Suisse (NYSE:CS) reached a settlement with investors in notes issued by the National Century Financial Enterprises (NCFE) – the Ohio-based healthcare finance company that went belly-up in 2002. ((Credit Suisse Announces Settlement of Noteholder Litigation Relating to NCFE Notes Issued between 1998 and 2002, Credit Suisse Press Releases, Mar 14 2013)) The investors alleged in the lawsuit that Credit Suisse, which was the placement agent for the bond issue, should have been aware of the fraud that forced NCFE into bankruptcy.
The second largest Swiss bank will incur an after-tax charge of CHF 134 million ($142 million) in relation to this settlment, which will be reduced from the bank’s Q4 2012 income figure.
Deutsche Bank (NYSE:DB) revised its net income figure for full year 2012 downward by €0.4 billion ($0.5 billion) as a result of an increase in its litigation reserve by €0.6 billion ($0.8 billion).  The bank now has €2.4 billion ($3.1 billion) stashed away as litigation reserves, with the recent increase attributed to a recent “U.S. mortgage-related litigation as well as unrelated regulatory investigations.”
It is a rather interesting coincidence that Deutsche Bank is one of 15 global banking institutions sued by Freddie Mac earlier this week for losses stemming from the manipulation of the LIBOR (see Freddie Mac Drags 15 Banks To Court Over Losses From LIBOR Manipulation).Notes:
- Citi Statement on Citigroup Bond Class Action Suit, Citi Press Releases, Mar 18 2013 [↩]
- Deutsche Bank provides update on its 2012 preliminary results, Deutsche Bank Press Releases, Mar 20 2013 [↩]