Too Big To Fail Banks Have Paid $251 Billion As the Cost of Regulatory Revenge

I was shocked to learn today that a group of the largest banks in the world, the very ones Uncle Sam spent big bucks on to save in 2008, have since then anted back to Uncle Sam a cool quarter of trillion  so far in the way of fines for engaging in some of the very behavior that required they be bailed out.

Thanks to the  estimable CCP Research Foundation, an independent research foundation in the UK, for doing this incredibly valuable spade-work for us, delineating in precise detail the malefactions of such wrongdoers as Bank of America , which has handed over roughly $120 billion of its rebounded operations, the price of the rotten mortgage-backed bonds sold to unsuspecting investors by Merrill Lynch and Countrywide Credit. These two troubled concerns required a financial savior from their impending insolvency. Herewith a useful learning experience.

So, Uncle Sam acted first as their marriage broker and later on responded to the roar of anger against Wall Street, by taking back a chunk of the money Bank of America had been allowed to coin. By the way, you should know that this roughly $120 billion was most likely paid with pre-tax dollars, a beneficial way to pay these debts. Mind you, the amount is not chicken feed, as it is more than 67% of the Bank of America's stock market capitalization, as we speak.

By the way, the ante from BAC to Uncle Sam continues to grow. Just last week, the bank agreed to turn over an additional $16.9 billion  as pay back for those dangerously destructive mortgages. And I have to stress that I think this revenge modus operandi is a dangerous precedent. Because what if Bank of America gets into trouble again, partly since its financial fire power has been substantially reduced by events in 2008. It's a poor substitute for putting top execs from Merrill Lynch and Countrywide Credit in jail. They must be laughing all the way to the bank.

Then there's giant J.P. Morgan Chase , which has paid over some $70 billion since 2008 for a whole series of questionable behavior including the fudging of the London Whale's misbegotten derivative trades; for this errant behavior, which cost the bank $6.5 billion in losses, it had to fork over just under $1 billion.  Still, a very embarrassing, quite shocking misbehavior by such powerful giant global banks that you have to question management's ability to be on top of all aspects. This $70 billion, by the  way, is roughly one third of JP Morgan's current market capitalization of $220 billion.

As for  poor Citigroup , it will add another $7 billion to the $31 billion it has already paid in fines for all the mischief it did back before and during the great financial crisis cum meltdown. That means so far $38 billion or almost 25% of its market capitalization has gone into paybacks. UBS, the Swiss giant, has paid fines of about $25 billion for a whole series of sins including the hiding of US investors from Uncle Sam and the laundering of money for Iran, which was against our laws.

The irony will come when and if the Fed and the Treasury have to bail out some of these banking institutions as the result of  the next financial crisis, whenever that happens to be. Then, we will have gone from saving them to letting them consolidate to fining them big-time before having to consider  quite costly campaigns to save them again. That will be called regulatory revenge gone awry.

In the meantime you will notice that Bank of America is one of the most active stocks on the Big Board,  rising 4 times in price from a 2009 low of $3.87 to around $16 a share. You could have bought it at $5.00 a share at the close of 2011, when it's fines were a negative market  influence. JP Morgan Chase sold at $22.31 in early March 2009, the market bottom; today it is nearing $60 a share, which is very nearly a triple in  5 1/2 years. Citigroup has basically quintupled from  a low of $10 to $50, after a reverse 1 share for 10 shares split deep into the crisis.