Citigroup and JP Morgans have set aside $1bn each to cover a tidal wave of expected litigation from customers. The smoking gun emails are making things bad for the banks.

Ten of Wall Street’s largest investment banks signed a landmark settlement with US securities regulators last week, which included findings of fraud against three banks – Citigroup’s Salomon Smith Barney unit, Credit Suisse First Boston and Merrill Lynch.

The regulators also released new evidence showing alleged conflicts of interest at other leading banks including Goldman Sachs and Morgan Stanley.

But the true cost to Wall Street is not the public shaming so much as the investor lawsuits that the revelations are likely to fuel.

Securities lawyers have already seized on a series of e-mails and other evidence thrown up by the investigation to buttress their arguments that investment banks knowingly misled investors. The final settlement has just rearmed them with much fresh material.

“This is going to be a war of attrition between Wall Street and its customers over the next five years,” said Jacob Zamansky, a securities attorney who has successfully sued brokerages for issuing faulty research. “The smoking gun e-mails and other evidence will be devastating.”

Legal analysts have estimated that Wall Street could pay more than $5bn to settle a single class- action lawsuit that accuses 55 firms of manipulating initial public offerings.

If so, that would suggest that the $1.4bn in fines and other fees included in the global settlement is nothing more than a down payment on their liability.

It will take some time for lawyers to read through the specifics of the settlement. Some legal experts doubt the findings of “fraud” against Merrill, Credit Suisse First Boston and Citigroup’s Salomon Smith Barney arm will be admissible in court. As is customary in such agreements, the banks have neither admitted nor denied the findings against them.

But that has not deterred the lawyers. Many with no previous securities law experience have attended conferences to learn how to bring such suits. “I get calls from lawyers every week,” Mr Zamansky said.

In addition, another cache of e-mails in which analysts refer to companies they were touting as “pieces of shit”, as former Merrill internet guru Henry Blodget did, should help to further tilt potential juries against Wall Street. As the cases wend their way through the legal system, the biggest focus is likely to be on the IPO class-action suit being led by Milberg Weiss.

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