The CSR Newsletters are a freely-available resource generated as a dynamic complement to the textbook, Strategic Corporate Social Responsibility: Sustainable Value Creation.

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Friday, January 24, 2014

Strategic CSR - Financial Crisis

The article in the url below provides an update on the cost of the recent Financial Crisis:
“Wall Street could pay nearly $50 billion to buy peace from federal authorities who are taking aim at the banks over their role in the mortgage crisis, according to interviews and a confidential analysis of the industry’s potential legal exposure. … The $50 billion figure does not include JPMorgan’s $13 billion payout, which means the ultimate industry tab could exceed $60 billion, according to the analysis.”
The basis for these estimates is the $13 billion settlement announced at the end of last year between the government and JP Morgan. Based on the relative amounts of mortgages issued by each of the largest banks from 2005-2008 (see accompanying graphic) and comparing to the JP Morgan settlement, the article arrives at estimates for each of the banks, individually:
“The analysis, which lawyers prepared for one of the financial institutions and which was reviewed by The New York Times, indicates that Bank of America could ultimately settle for $11.7 billion in penalties, with an additional $5 billion in relief to homeowners. Morgan Stanley’s combined tally, the analysis shows, could be around $3 billion, with roughly a third going to consumer relief, while Goldman Sachs’s total could come to roughly $3.4 billion. For the Royal Bank of Scotland, the total price could be around $10 billion, which might prompt an outcry in Britain, where the government owns a majority stake in the bank. Citigroup could pay roughly $1 billion, the analysis shows. The potential penalties for other banks are under $1 billion, the analysis shows.”
It is encouraging to see the government act as a concerned stakeholder … at last. Of course, all pain is relative:
“A payment of $50 billion, made up of a string of separate deals, would amount to roughly half the total annual profit of large American banks in 2012.”
Have a good weekend
David Chandler & Bill Werther
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Wall Street Predicts $50 Billion Bill to Settle U.S. Mortgage Suits
By Jessica Silver-Greenberg and Peter Eavis
January 10, 2014
The New York Times
Late Edition – Final