U.S. Attorney General: Banks in Line for Bernie Madoff Treatment

The United States Attorney General is going after the banks (NYSE:KBE), with a vengeance. Attorney General Tom Perelli arranged a conference call with a bipartisan group of state attorney generals from across the country to discuss avenues of prosecution for a target group of five banks that were pinned as major facilitators of the financial crisis. The targeted lenders are: Bank of America (NYSE:BAC), JP Morgan (NYSE:JPM), Wells Fargo (NYSE:WFC), Citigroup (NYSE:C), and Ally Financial. (For more on banking woes, see “Why John Paulson is Selling His Bank Stocks.”)

Perelli will seek a settlement of $20 billion from the banks for their contributory and direct participation in foreclosure abuse, among other charges. This amount is four times the original proposed settlement. While members of the Obama administration such as Secretary of Treasury Tim Geithner has called for a swift resolution to these prosecutions, State and Federal attorney generals seem to be enjoying sinking their teeth into this case.

There are reportedly three major issues that remain unresolved between the banks and the federal prosecutors. The first is “the scope of the banks release from liability that would cover the deal,” aka could they still be tried for other charges after this one settles, the second, arranging a budget for the $20 billion dollars, splitting it between helping victimized borrowers to restructure mortgage’s and banking fines, and third, how bank behavior will continue to be monitored (federally) after such an agreement is reached.

As the bad news continues to pile up for the banks stock prices are heading towards a free-fall in the financial sector. The banking index has dropped 11% over the past three months, and the largest mortgager service index and Bank of America (NYSE:BAC) both hit two year lows in trading yesterday.

Oh yeah, there’s one more thing. This is just the first round of charges. There could be another round of investigations pending, that will look into more violations of the U.S. False Claims Act related to the financial crisis. Reportedly from Huffington,”a set of confidential federal audits (prosecutors have) in their back pocket,” could have the banks in more trouble.

Don’t Miss: Investing In Banks: Why John Paulson is Selling His Bank Stocks.