The $1+ Billion Settlements For Corporate Misconduct Possible in 2015


Last post, we took a look at more than $40 billion in settlements between the government and corporations in 2014. After a year of record settlements including the largest civil settlement reached between the U.S. Government and a single entity, a decrease in the overall amount of fines should be expected. Nevertheless, it looks like there will still be multiple settlements over the next year reaching more than $1 billion.  Banks dominate the list once again as additional players will be resolving investigations into mortgage fraud and market manipulation that have been common in the financial industry over the past few years.

Here are the settlements we are currently watching for in 2015:

1. Royal Bank of Scotland – FHFA Mortgage Securities
RBS has yet to resolve the private label securities lawsuit filed by the Federal Housing Finance Agency in 2011 related to mortgage securities it sold to Fannie Mae and Freddie Mac. It is one of only two unresolved FHFA lawsuits and The Times reported that RBS may have to pay at least $7.7 billion to resolve the matter. The bank has already set aside $2.9 billion towards a settlement.

2. Standard & Poor’s – Mortgage Ratings
The subsidiary of McGraw Hill Financial faces a $5 billion lawsuit from the Department of Justice and a California lawsuit seeking $4 billion for its inflation of mortgage bond ratings. In July, the Wall Street Journal reported that S&P was open to paying more than $1 billion to resolve the charges brought by the Federal Government.  S&P may also make the news for a smaller settlement of more than $60 million to resolve an investigation into its practices governing grading of commercial real estate bonds in 2011 by the Securities & Exchange Commission, New York and Massachusetts.

3. Morgan Stanley – Mortgage Securities
Bloomberg has reported that Morgan Stanley could resolve a DOJ investigation into its mortgage-backed bond practices in the first few months of 2015.  Documents suggest that Morgan Stanley encouraged subprime lender New Century Financial to make risky loans from 2004 until 2007.  The potential settlement amount for the investigation into its due diligence practices and disclosures to purchasers has not been disclosed, but the number could be significant since New Century made more than $50 billion in mortgage loans in 2006 and was the second largest subprime mortgage lender behind Countrywide.

4. Commerzbank – Anti-Money Laundering and Sanctions
The Financial Times reported that Germany’s second largest bank could pay more than $1 billion to resolve an investigation of the Department of Justice, the New York State Department of Financial Services (NY DFS) and the Manhattan District Attorney’s office into anti-money laundering and sanctions violations. A settlement of $650 million was expected last year but delayed as authorities began investigating the bank’s role in the Olympus accounting scandal.

5. Deutsche Bank – Interest Rate Benchmark Manipulation
Deutsche Bank is under investigation by the U.S. and U.K.  for Libor manipulation between 2005 and 2011.  Settlement talks between the authorities and the European bank are still at an early stage but both UBS and Rabobank paid more than $1 billion to authorities globally to resolve similar allegations.

6. Barclays – FOREX
Barclays could be headed for a fine around $1 billion for FOREX manipulation because of its role in the same misconduct causing six banks to pay $4.4 billion to three regulators in November. Barclays reportedly pulled out of the global settlement with the Commodity Futures Trading Commission and the UK Financial Conduct Authority at the last minute because the NY DFS, where it is also under investigation, would not agree to a resolution. Citigroup and JPMorgan both paid more than $1 billion to resolve regulators’ investigations while receiving a 30% discount with the FCA for the early settlement.

7. General Motors – Ignition Switch Recall
GM discovered ignition switch problems with its vehicles more than ten years prior to its recall announcement in 2014.  It is expected to face a fine from the U.S. Government similar to the one paid by Toyota Motors.  Toyota paid $1.2 billion in March 2014 to resolve the investigation into its misleading disclosures over vehicle problems with unintended acceleration.  Arizona has already sued GM for $3 billion related to its delayed automotive recall of ignition switches. GM also faces a lawsuit from car owners seeking $10 billion for the lost value of their vehicles.

8. Wal-Mart – FCPA
Wal-Mart’s multi-year investigation into bribery allegations in Mexico and elsewhere will be moving from the investigation phase into settlement negotiations at some point over the next few years. 2015 is probably too early to expect a settlement but with spending on the internal investigation starting to slow it could be a hot topic at the end of 2015 and throughout 2016. Some have speculated that the potential resolution will require more than $1 billion, making it the largest FCPA fine ever.  Wal-Mart has already spent approximately $500 million to investigate the bribery charges.