Tuesday, March 1, 2011

J.P.Morgan Chase Fighting 10,000 Lawsuits

and $4.5 billion short on reserves to cover the litigation costs, according to the article on The Street yesterday (2/28/11).

The proceedings are the result of "faulty" (fraudulent would be the word) mortgage origination, securitization, servicing and foreclosure processes by the bank, who is the originator, securitizer, servicer, trustee of REMICs all in one, just like other TBTF Wall Street banks:

NEW YORK (TheStreet) -- JPMorgan Chase is a defendant in more than 10,000 legal proceedings and may be $4.5 billion short of reserves needed to cover those costs in a worst-case scenario, the firm said in a regulatory filing on Monday.

The New York-based bank's legal woes range from individual actions against JPMorgan Chase to class actions with "potentially millions" of litigants to "regulatory/government investigations." The suits include common law tort and contract claims, statutory antitrust claims, securities claims and consumer protection claims, the bank said in its 10-K filing with the Securities and Exchange Commission.

...In a conference call last month, JPMorgan CEO Jamie Dimon predicted that securitization lawsuits alone will be a long, difficult battle.

"It is going to be years before this plays out and this litigation is going to be fought almost securitization by securitization," Dimon said. "There is almost no other way to do it."

No kidding, Jamie. J.P.Morgan Chase has inherited the securitization done by Bear Stearns and Washington Mutual, as well as their own.

The article also mentions how the other TBTF banks are faring in terms of litigation reserves:

  • Citigroup: $4 billion short

  • Bank of America: $1.5 billion short

  • Wells Fargo: $1.2 billion short

With J.P.Morgan Chase's $4.5 billion, the total reserve deficit for these four banks is $11.2 billion. Considering Wells Fargo got Wachovia and Bank of America got Countrywide, their reserve shortage look too small.

Particularly for Wells Fargo, as the bank is one of the 3, 4 banks that act as the trustee of REMICs that supposedly hold underlying mortgages. What are the duties and responsibilities of a REMIC trustee? Among others, it is supposed to verify and confirm that the mortgages are properly transferred to the REMIC within the time frame specified in the pooling and servicing agreement, and that the mortgages meet the standard set out in the agreement.


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