Bank balance sheets 'in chaos' over legal provisions

US banks are in the first steps of preparing their Q1 results - and many are thought to be concerned that the inclusion of large legal provisions will encourage regulators and consumers to aim for bigger settlements than they would otherwise accept.

25 March 2015

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Q1 results are expected to be publshed mid-April. One leading banking lawyer told The Financial Times: 'Reserving is in chaos.' Rodgin Cohen, senior partner of Sullivan & Cromwell, has been described as the leading US banking lawyer, and he fears that regulators might be using bank provisions as a gauge as to what level of settlement they should aim for. He has said that the record level of regulator fines might mean, for a bank, that 'creating a public reserve for a potential settlement with the government can paint a target on your back'.

Nonsense

The legal provisions are also seen as making a nonsense of some sets of results. Morgan Stanley, for instance, reported US$1b of net income in Q4 of 2014. But, if transfers to and from legal provisions were removed, the actual result would have been a loss of $1.75b. Source: Financial Times