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Wells Fargo lowers estimate for litigation losses

Wells Fargo on Wednesday lowered its estimate of possible losses from litigation by roughly $50 million.

The San Francisco-based bank said it could suffer losses as much as $951 million above what it has set aside for legal expenses, down from its previous estimate of $1 billion. The bank made the disclosure in a filing with the Securities and Exchange Commission.

The move by Wells Fargo came a day after Bank of America increased its estimated possible litigation losses by $1 billion.

Banks maintain litigation reserves to cover potential legal costs. In quarterly securities filings, banks disclose their estimated potential legal costs above and beyond what is in the reserves. An increase in the estimate signals a bank perceives heightened legal risks. A decrease indicates lower risk.

Since the financial crisis, banks have had to boost their legal reserves to cover costly litigation. Banks have also reduced their reserves as they have put crisis-related legal issues behind them.

In December, Wells Fargo reached a $591 million settlement with Fannie Mae over claims the bank sold defective mortgages to the mortgage giant. The accord released the bank from any requests to buy back loans made before 2009. Similar accords have been reached with other banks.

Government authorities continue to investigate Wells Fargo over mortgage practices, the bank said Wednesday.

JPMorgan & Chase said in a securities filing last week that it lowered its potential loss estimate to as much as $5 billion from the previous estimate of $5.7 billion. In the fourth quarter of last year, the New York-based bank announced billions of dollars in settlements, including a $13 billion deal over mortgage-backed securities.

In contrast to Wells Fargo and JPMorgan, Bank of America said in its annual report Tuesday that it has boosted its estimate of potential litigation-related losses to $6.1 billion on the high end. On the same day, the bank disclosed that it is the subject of two investigations by authorities inside and outside the U.S. One investigation involves the Federal Housing Administration’s Direct Endorsement Program. The other probe involves foreign exchange markets.

Bank analyst Nancy Bush described Bank of America’s $1 billion increase in loss estimates as a “mop-up issue.” The banking industry has resolved about 75 percent to 80 percent of its crisis-era litigation, she said.

“The bank wars aren’t over yet, by a long shot,” she said.

“Do I think that the industry is still facing a tsunami of new litigation? I think we kind of know everything that’s out there.”

Bank of America’s, JPMorgan’s and Wells Fargo’s latest figures on possible litigation losses reflect estimates as of the end of last year.

Roberts: 704-358-5248; Twitter: @DeonERoberts
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