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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Assange says It Is Bank of America

AFP reports:

...In an interview with The Times on Tuesday, ...Assange also confirmed that WikiLeaks was holding a vast amount of material about Bank of America which it intends to release early next year.

I was secretly hoping that the "bank" he's been talking about was the Federal Reserve Bank of New York. I'll have to wait for Ron Paul to attack that bank...

Shares of Bank of America (symbol: BAC), which has been under pressure since the rumor spread that it was the next target of WikiLeaks, ended at $13.07 in after-hour trading.

(For traders, it was, I believe, a technical breakout from the double-bottom pattern, with the target price of $14.56. For more, see my TA blog. I'm not recommending anything here, and BAC would be the last thing I want to trade.)

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SEC Looking at Securitization Process in Mortgage Foreclosure Probe

About time, and therefore that means the feds are getting close to striking a deal with the banksters, legitimatizing everything they've done.

Reuters reports that the SEC has sent out a new round of subpoenas to Wall Street banks in its probe of mortgage/foreclosure fraud, and this time the regulators are looking at the very root of the fraud - securitization:

U.S. regulators have opened a new line of inquiry in their mortgage foreclosure probe and are asking big Wall Street banks about the beginning stages of mortgage securitization, two sources familiar with the probe said.

The Securities and Exchange Commission launched the new phase of its investigation by sending out a fresh round of subpoenas last week to big banks like Bank of America Corp, Citigroup Inc, JPMorgan Chase & Co, Goldman Sachs Group Inc and Wells Fargo & Co, the sources said.

The SEC's subpoenas focus on the earliest stage of the mortgage securitization process, said the sources, who requested anonymity because the probe is not public.

The sources said the SEC is asking for information about the role of so-called "master servicers" -- specialized firms that oversee the selection and maintenance of the large pool of home loans that go into every mortgage-backed bond.

...One of the sources said the SEC is seeking information about the role banks had in mortgage securitization. The regulator is also looking at the role trustees for the trusts that issued the mortgage-backed securities had in monitoring the performance of the underlying loans.

"Master servicers" - read Bank of America, J.P.Morgan Chase, Wells Fargo, Citibank. Servicers are the ones who collects mortgage payments from the borrowers.

"Trustees of the trusts [REMIC]" - read Wells Fargo, US Bankcorp, Bank of New York Mellon, Deutschebank. Trustees of the REMICs are the ones who were supposed to verify all the necessary documents were properly transferred to the trusts.

Foreclosures in mostly judicial states have turned out to be the discovery process, as the homeowners and lawyers defending them have found out that their mortgages were never transferred properly to the REMICs, and the foreclosing parties (either the servicer or the trustee) do not have the legal standing in foreclosure.

Attorneys who have been trying to help homeowners in foreclosure will tell you that they've known for a long time that mortgages were never transferred to the REMIC, but that was business as usual for the industry and no one raised a stink about it.

And who bought the securities issued out of these trusts, which may have been issued without any backing? Banks, hedge funds, pension funds, mutual funds around the world. One of the largest holders of these securities - mortgage-backed securities - is the Federal Reserve under Ben "Bernank". The Fed has over $1 trillion of these MBS.

These banks have been telling us "Oh it's just minor document processing problems", precisely because it is not.

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Denninger: You're Paying Your Mortgage - WHY?

so Karl Denninger at Market Ticker, who has been on top of the "foreclosuregate", asks, as he describes a lawsuit in Texas in which Bank of America is accused of trying to collect on the fully-paid mortgage.

I fully agree with his shouting and screaming in bold letters and capital letters. But alas, none of that matters in non-judicial states where even the real estate attorneys tell you to forget it (unless you are financially able to retain them), and it is unlikely to change any time soon. And the big national banks like Bank of America and J.P.Morgan Chase, acting as the loan servicer or the trustee of the mortgage trust, keep pocketing the houses that they have no title to, as government regulators look the other way.

Now, Denninger's shouting and screaming:

Now comes this lawsuit out of Texas alleging that Bank of America not only tried to collect on a PAID IN FULL mortgage but refused to listen to the fact that it had been paid in full and in fact threatened that the owners were "going to lose their home."

These banks all claim there is no "real problem" with securitization, there are no pernicious issues with paperwork not being in order, it's all on the up and up, yet we continue to see filings like this, and these filings - extreme measures, lawsuits even - come only after reasonable attempts to communicate with these institutions and resolve problems are met with STONEWALLING and games - even when, as is alleged here, there is evidence that the loan in question was paid in full and discharged!

Had enough yet?

This is all "minor paperwork errors" and "nobody has lost their home" (or been unjustly harassed, dunned and threatened for money they do not owe, right?)

AGAIN:

WHY ARE ANY OF YOU PAYING ANY OF THESE BANKS ANYTHING?

WHY ARE STATE REGULATORS AND ATTORNEYS GENERAL NOT FORCING ALL OF THESE LOANS THROUGH THE COURT SYSTEM AND MAKING THESE SO-CALLED ALLEGED "CREDITORS" COME TO COURT AND PROVE THE PROVENANCE OF THEIR CLAIMED "DEBTS" WITH A FULL AND UNBROKEN CHAIN OF ASSIGNMENTS?

HOW MANY MORE TIMES DO WE NEED TO SEE THIS BEFORE IT IS STOPPED?

THE ONLY WAY WE ARE GOING TO GET THESE INSTITUTIONS' ATTENTION, AND THAT OF THE LAWMAKERS AND LAW ENFORCEMENT BODIES IN THIS NATION, IS WHEN THE PEOPLE OF THIS COUNTRY REFUSE TO PAY ANY OF THESE BANKS ONE SINGLE DIME - OWED OR NOT - UNTIL ALL OF THIS CRAP STOPS AND EVERY ONE OF THESE "DEBTS" HAS ITS PROVENANCE PROVED UP IN A COURT OF LAW.

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NY Fed Suing Bank of America a Damage Control? Or Worse, a "Wag the Dog" Ploy?

(UPDATE)
Adding to my already deepened suspicion, FBI is joining the fray. From AP,

Meanwhile, a federal law enforcement official says the FBI is in the initial stages of trying to determine whether the financial industry may have broken criminal laws in the mortgage foreclosure crisis.

The law enforcement official says the question is whether some in the industry were acting with criminal intent or were simply overwhelmed by events in the wake of the housing market's collapse. The official spoke on condition of anonymity because the investigation is just getting under way.

Well, shall we bother to guess which one? I bet it's of course the latter, that they were simply overwhelmed by events... They were innocent victims...

Currently, the federal government DOES NOT have control over foreclosures. State governments DO. But with the NY Fed bringing a lawsuit and now the FBI investigating, the federal government is trying to sneak in, and probably to take over the mess for yet another feds control and yet another potential bailout by taxpayers. My guess.

The feds will have to cover up; I hate to think how much crap is buried at Fannie, Freddie and FHA. (You could say their entire structure is pure crap.)

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One poster at Zero Hedge ('alien-IQ') posits:

I just realized why the FED is suing BAC (and probably all the other banks)...and it's not good.

This now becomes a Federal case and effectively shuts down all the investigations as well as all the charges being brought against the banks by the AG's of all 50 states. The AG's are more likely to seek criminal charges while the FED is more likely to cut a "bank friendly" deal.

The banks just won...again.

We have been hijacked.

The Zero Hedge article which has this comment points to a curious conflict of interest between Bank of America (who owns 34% of Blackrock) and Blackrock (who owns 5.35% of Bank of America, the largest shareholder), and concludes this putback request is nothing but diversion while they sweep the "foreclosuregate", "fraudclosure", whatever you want to call it, under the rug.

Move on, nothing to see here...

We'll see if they can get away with it this time, but if past cases are any indication, I wouldn't hold my breath.

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Putbacks! And So It Has Begun ...

to paraphrase Karl Denninger...

So "the holders of over 25% of the Voting Rights in more than $47 billion of Countrywide-issued RMBS" from yesterday's post about the link at Market Ticker turn out to be PIMCO, the Federal Reserve Bank of New York, Blacklock, and MetLife.

New York Fed??

Pimco, New York Fed Said to Seek BofA Repurchase of Mortgages
(10/19/2010 Bloomberg)

Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York are seeking to force Bank of America Corp. to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit, people familiar with the matter said.

The bondholders wrote a letter to Bank of America and Bank of New York Mellon Corp., the debt’s trustee, citing alleged failures by Countrywide to service the loans properly, their lawyer said yesterday in a statement that didn’t name the firms.

That "statement" yesterday is this.

So that's why PIMCO's Bill Gross has been buying MBS on the margin...

But New York Fed?? I guess they are very worried about the $1.2 trillion "worth" of MBS that the Fed carries on the balance sheet.

And why Countrywide? Maybe the plea bargain by Angelo Mozilo the other day has something to do with it... Some good info from Angelo to avoid jail time, maybe.

Bear Stearns, Lehman Brothers. Marked for dead. Now Bank of America?

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Houston, We Have a Problem...

The day Bank of America boldly announced it would resume foreclosures in the 23 judicial states also had this:

HOUSTON, Oct. 18 /PRNewswire/ --Today, the holders of over 25% of the Voting Rights in more than $47 billion of Countrywide-issued RMBS sent a Notice of Non-Performance (Notice) to Countrywide Home Loan Servicing, as Master Servicer ("Countrywide Servicing"), and to Bank of New York, as Trustee, identifying specific covenants in 115 Pooling and Servicing Agreements (PSAs) that the Holders allege Countrywide Servicing has failed to perform.

What do they demand?

the repurchase of loans that were originated in violation of underwriting guidelines, and compelling the sellers of ineligible or predatory mortgages to bear the costs of modifying them for homeowners or repurchasing them from the Trusts' collateral pools

If (big IF) those mortgages have indeed been in the Trust's collateral all these years (i.e. notes properly endorsed, assigned and delivered within 90 days of the close of the Pooling and Servicing Agreements), that is.

Maybe Bank of America announcement was a bit premature.

For more, go read the post at Market Ticker.

(h/t 'erickbacardi')

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Bank of America Halts Foreclosures in All 50 States

from Zero Hedge:

"As we expected when we reported that the Delaware AG got into the foreclosure fray (Delaware not being a judicial state), it was only a matter of time before foreclosures would be halted in all 50 states. Sure enough, Diana Olick has just reported that BofA has just expanded its foreclosure halt from the 23 judicial states, to all 50 states. And so, the pendulum swings from populist anger to adulation. The only question is when will Tarp 2 be enacted now that banks are facing tens of billions in losses."

Here's a bit more info from WSJ:

"The decision by Bank of America to extend its postponement to all 50 states takes effect Saturday. The bank doesn't intend to lift the moratorium until its assessment of all documentation is complete, a spokesman said."

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Jon Corzine for Bank of America CEO?

rumor that makes some of you want to puke.

After a sound rejection by the New Jersey voters in the gubernatorial election, Jon Corzine may be staging a comeback already. This time, as the new CEO of Bank of America.

Overheard: Corzine's Comeback? (11/5/09 Wall Street Journal)

"From Trenton to Charlotte? Bank of America's chief executive search has highlighted the paucity of available executives with a history of running complex financial organizations. But one has just come available. Fresh from his rejection as governor by New Jersey voters, former Goldman Sachs CEO Jon Corzine already is being whispered about as a dark horse candidate. With BofA still under the government's thumb, his political experience could come in handy."

It would make sense politically for Bank of America. As one of the non-Wall Street banks (another major one is Wells Fargo) with an outsider CEO like Ken Lewis who seems to have been targeted by the regulators (Paulson, Bernanke, Geithner) to be stepped upon repeatedly, having a former CEO of Goldman Sachs and a darling of the administration might improve their lot.

All I can say is that the founder of Bank of Italy in San Francisco which evolved into Bank of America, would be so disgusted to see his bank now. The founder Amadeo Giannini was an entrepreneur who believed in people pulling themselves up by their bootstraps (the very spirit that was ridiculed by the way at the Democratic convention that nominated the then-candidate Obama):

"The Bank of Italy[17] was founded in San Francisco by Amadeo Giannini in 1904, based on catering to immigrants. Amadeo was raised by the Fava/Stanghellini family when his father was shot while trying to collect on a $10.00 debt.[citation needed] When the 1906 San Francisco earthquake struck, Giannini was able to get all of the deposits out of the bank building and away from the fires. Because San Francisco's banks were in smoldering ruins and unable to open their vaults, Giannini was able to use the rescued funds to start lending within a few days of the disaster. From a makeshift desk of a few planks over two barrels, he lent money to anyone who was willing to rebuild. He took great pride in later years that all of these loans were repaid." (from Wikipedia.org)

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Major Bank Earnings This Week

"Sell the news" event? We shall see. (The banks below will all report before the market open.)

Wednesday October 14, 2009

• J.P. Morgan Chase (JPM): Estimates: 0.65 0.49 0.32 (High Mean Low)

Thursday October 15, 2009

• Citigroup (C): Estimates: -0.07 -0.21 -0.51 (High Mean Low)
• Goldman Sachs (GS): Estimates: 4.75 4.237 3.82 (High Mean Low)

Friday October 16, 2009

• Bank of America (BAC): Estimates: 0.08 -0.067 -0.33 (High Mean Low)

Morgan Stanley (MS) and Wells Fargo Bank (WFC) will report next week.

I can't see why they would miss. Big fat spread between their borrowing and lending, increased fees and APRs on consumer credits (JPM, C, BAC), profitable trading operations in the bond market, stock market, and commodities market (flash trading is still legal and going strong), LBO coming back...

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10 Banks Allowed To Repay TARP

(Update 8:39 am PST) So Tim Geithner released the statement but he didn't name the banks? The banks who have said they are repaying the TARP are (according to Bloomberg):

• J.P. Morgan Chase
• Morgan Stanley
• American Express
• Bank of New York Mellon
• BB&T
• Capital One
• Northern Trust
• State Street
• US Bancorp

------------------------------------------------------------------

According to various news sources (here's one), the Treasury Department is likely to announce as early as Tuesday morning 10 banks that will be allowed to repay TARP money. ["Allowed"...]

The names of the banks unofficially mentioned are:

• J.P. Morgan Chase
• Goldman Sachs
• American Express
• State Street
• Bank of New York Mellon
• Morgan Stanley

The names of the banks unofficially pronounced "doomed", tethered to the government for a foreseeable future, are:

• Bank of America
• Citigroup

Bank of America could have avoided at least half the trouble by not buying Merrill Lynch, no matter how Ken Lewis was threatened by the Bernanke-Paulson duo. Citigroup might have been better off today if it had acquired Wachovia's good assets with FDIC's help.

According to this article from AP,

"Simon Johnson, a former chief economist at the International Monetary Fund, said putting Citigroup and Bank of America at a disadvantage might be part of the government's plan.

""Both banks need to downsize, so this is going to cause them to lose talent if the constraints are effective," said Johnson, now at the Massachusetts Institute of Technology's Sloan School of Business. "That may be, given the political constraints, the most effective way to reduce systemic risk."'

So does that mean they will be the banking equivalent of Chrysler and GM, being reduced to a government's tool to achieve its policy goals? On top of that, they will be managed by 3 different Presidential czars (Economic, Bailout, Pay) possibly 4 (Bank), who will come before the government official, Treasury Secretary Geithner.

Who's missing among big names?

• Wells Fargo

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U.S. pressures BofA on board revamp

according to report by Wall Street Journal, says Reuters, via Yahoo Finance News:

"U.S. officials have urged Bank of America Corp (BAC - News) to revamp its board and bring in directors with more banking experience, the Wall Street Journal said.

"The bank has been criticized for having a dearth of directors with banking experience, and last week said it set up a committee including Massey [new Chairman of the Board] and four other directors to find new board members to plug that gap.

"It is unusual for the government to be directly involved in bank management when it does not have a direct common stock ownership stake."

Here's the list of Bank of Amerca's Board of Directors (source: Bank of America website):

Walter E. Massey, (70)Chairman of the Board, Bank of America Corporation
William Barnet III, (66)Chairman, President and Chief Executive Officer, The Barnet Company
Frank P. Bramble, Sr. (60)Former Executive Officer, MBNA Corporation
Virgis W. Colbert, (69)Senior Advisor, MillerCoors Company
John T. Collins, (62)Chief Executive Officer, The Collins Group, Inc.
Gary L. Countryman, (69)Chairman Emeritus and Director, Liberty Mutual Group
Tommy R. Franks, (63)Retired General, United States Army
Charles K. Gifford, (66)Former Chairman, Bank of America Corporation
Kenneth D. Lewis, (61)Chief Executive Officer and President, Bank of America Corporation
Monica C. Lozano, (52)Publisher and Chief Executive Officer, La Opinion
Thomas J. May , (61)Chairman, President and Chief Executive Officer, NSTAR
Patricia E. Mitchell, (66)President and Chief Executive Officer, The Paley Center for Media
Joseph W. Prueher, (66)Retired Admiral, United States Navy
Charles O. Rossotti, (68)Senior Advisor, The Carlyle Group
Thomas M. Ryan, (56)Chairman, President and Chief Executive Officer, CVS/Caremark Corporation
O. Temple Sloan Jr., (70)Chief Executive Officer, General Parts International
Robert L. Tillman, (65)Former Chairman and CEO Emeritus, Lowe's Companies, Inc.
Jackie M. Ward, (70)Retired Chairman and Chief Executive Officer, Computer Generation, Inc.

Two military veterans (Tommy Franks, Joseph Prueher), Spanish-language newspaper publisher, utility company, pharmacy, real estate investment firm, local (NC) auto parts supplier, the Carlyle Group. Nothing wrong with the board with directors with diverse backgrounds. It may actually be better NOT to have board members with a lot of banking industry experience; directors may actually ask questions as a business person, not as a banker.

The government officials seem to want to remove Ken Lewis, BofA CEO, and they don't like the board's continued support of him. Wonder why. Haven't heard anything about their displeasure at other TARP banks CEOs.

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How Will Market React To GM, Bank of America News?

GM details plans to wipe out current shareholders (Reuters)
[emphasis mine]

"General Motors Corp on Tuesday detailed plans to all but wipe out the holdings of remaining shareholders by issuing up to 60 billion new shares in a bid to pay off debt to the U.S. government, bondholders and the United Auto Workers union.

"The unusual plan, which was detailed in a filing with U.S. securities regulators, would only need the approval of the U.S. Treasury to proceed since the U.S. government would be the majority shareholder of a new GM, the company said.

"Once GM has issued new shares to pay off its debt to the U.S. government, bondholders and its major union, it said it would then undertake a 1-for-100 reverse stock split."

Bank of America to need $34 billion in capital: source (Reuters)

"Bank of America has been deemed to need an additional $34 billion in capital, according to the results of a government stress test, a source familiar with the results said on Tuesday.'

Dow futures -83 as of 22:16 EST.
GM shares ended the regular session at $1.85, but dropped to $1.66 in after hours.
BAC shares ended the regular session at $10.84, and ended $10.86 in after hours.

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Credit Default Swaps market update

US Credit Default Swaps Little Changed, CDX Trading Shows (Bloomberg.com)

Watch out for this for the market direction in general, and financial stocks in particular (C, BAC).

That's where the heavy betting by big traders seems to be: CDS market.

They are speculating on the company's ability to repay its debt (or the government's willingness to protect the debt holders). Some people believe this was what caused the crash in financial stocks last year, and that's what they are doing now again.

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