The mess resulting from foreclosures and mortgages could cost the mega banks to cough up billions in dollars. During the last twenty years the merger of banks resulted in huge savings in cost and temporary hike in stock prices but it left behind a sticky puddle.

JPMorgan Chase in its latest regulatory filing noted that its legal expenses connected with pending court cases number 10,000 could be around $4.5 billion. It did not particularly say how much would be related to mortgage costs. Bank of America is set to incur $1.5 billion for extra legal expenses mainly in its big war with the bond holders who are after it for the defective mortgage loans.

The current fiasco in the mortgage sector is largely due to the officers of the bank running wild. Mergers and speedy signing were the two great money savers during the time of the boom. The deal between Chase and Morgan in 2000 was followed by merging with BankOne. It lead to cutting down of costs calculating to $3.7 billion. It was justification for creation of value worth billions for stock holders.

These marriages were blessed by the executive of the bank like CEO of JPMorgan, Jamie Dimon. The argument was that by these moves banking would become more streamlined and efficient. By getting rid of repeat costs in the back offices, stopping overlapping of data systems, clearing functions and reducing of staff the profits of the banks increased.

The numbers also proved this point. The ratio between loans and deposits became higher by ten points for the bigger banks as compared with the smaller banks. Theoretically it meant that the mega banks could recycle about $800 billion of the $8 trillion deposits in the country; it would go back to the purses of the consumers, the small business concerns and the corporations.  Simultaneously there was greater profit for shareholders.

The disruption of the crisis did not alter the efficiency ratio. The latter measures the revenue with expenses. But the hidden cost behind this “efficiency”  is now becoming transparent to shareholders. The mass signing of documents known as robo-signing, the lost paper trails and open fraud is now taking its toll and will continue to do so for many years ahead.