Lawsuits have been piling on the big banks at warp speed over the past year or two, and scarcely a day goes by without news of some new legal action against them, or the details of some new multi-million dollar settlement.
Occasionally, however, one of those banks fights back and wins. Such is the case with Wells Fargo (NYSE: WFC ) , which recently prevailed in an appeals case in California regarding debit card overdraft fees .
Where others feared to tread
Like other big banks such as Bank of America (NYSE: BAC ) , JPMorgan Chase (NYSE: JPM ) , U.S. Bank (NYSE: USB ) , and PNC Financial (NYSE: PNC ) , Wells had been sued by customers steamed by banks' processing shenanigans regarding the order of debit card transactions, which resulted in higher consumer fees. Like the others, Wells was ordered to pay restitution for its misdeeds, to the tune of $203 million.
While the other banks settled their cases and plan to pay up, Wells took the issue to court. Interestingly, its argument to vacate the award wasn't based upon whether or not the bank actually did what the claimants said. The bank maintained that, under federal law, it had the right to process the transactions any way it saw fit, and that this law superseded California law. Wells won on that point, although the court did note other violations and remanded the case to a San Fransisco trial court.
On a roll?
This victory comes hot on the heels of another win -- this time, with the Securities and Exchange Commission. About one month ago, the bank was notified by regulators that it was in the clear regarding mortgage-backed securities it sold during the run-up to the financial crisis. This was huge, since the value of the MBSes in question topped $60 billion .
But not every day brings sunshine on the legal front, and the U.S. Attorney's Office filed a suit in October against Wells for fraudulent mortgage-writing activity that led to massive defaults. This is a biggie, and the government is looking for damages in the hundreds of millions. Then, there are the mortgage-servicing lawsuits, in which Wells and Morgan Stanley (NYSE: MS ) face investors' ire regarding $73 billion of troubled securities. Based on what Bank of America coughed up for a similar suit, analysts estimate Wells could eventually pony up $1.2 billion. Wells' attempt to stop this lawsuit, based upon the terms of the $25 billion foreclosure settlement, didn't fly.
One Fool's take
Will Wells Fargo's spunkiness and willingness to fight mean fewer payouts, which is good for investors, or just bigger legal fees? This remains to be seen, but it seems that the bank is picking its issues carefully, not just battling on all fronts because of vestiges of its Wild West roots.
At any rate, analysts feel that Wells' strong balance sheet and lack of background problems, such as B of A's lousy legacy loans from Countrywide, will buffet the bank from feeling any real pain, despite its share of litigation headaches. This fact will surely make investors feel more comfortable as they sit back and watch the show.