Oil and money

The big banks seem to be more worried about lawsuits than Big Oil

November 3, 2013
November 3, 2013
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Subprime mortgages generate more ire than subsea oil spills, according to one rough measure of large companies’ legal woes.

The mountains of litigation generated by the financial crisis have been making headlines, but how do the big banks’ legal troubles compare with other litigation-prone industries? Judging by third-quarter earnings reports, banks are in deeper legal trouble than oil companies, which are never far from controversy given their complex and costly projects, potential for environmental damage, and tenuous relationships with capricious government regimes.

As it happens, big banks and big oil companies report their quarterly earnings around the same time, and the key players in these oft-maligned industries routinely face a welter of civil lawsuits and criminal investigations around the world. Quartz combed through the latest financial statements for disclosures on current and pending litigation, tallying the number of words that each company devotes to describing its legal troubles to investors (see chart above). The result is a (very) rough proxy of the scale and complexity of a firm’s legal troubles.

Some caveats: Not all of the big banks and energy groups have reported official audited results for the third quarter, where they reveal all of their legal woes—these are excluded from the chart above. Different disclosure regimes in the US and Europe probably explain some of the differences in word counts. And, some companies may employ wordier lawyers or fussier accountants than others.

Companies tend to give a more complete account of their legal woes in annual reports, so here is the same measure, using annual filings from 2012:

Litigation-disclosures-word-count-2012-Word-count_chartbuilder

In this context, BP tops the rankings with around 14,000 words of legalese. But as its dwindling disclosures for the third quarter show, the oil giant’s legal troubles are steadily being resolved, while big banks’ problems are flaring up. It could be worse: The legal disclosures in tobacco group Altria’s latest annual report run to a novella-length 23,000 words.

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