As a respite for
JPMorgan Chase & Co.
), a lawsuit against its Bear Stearns unit was dismissed by a
U.S. district court on Wednesday. The news was confirmed by a
The suit filed by hedge fund, SRM Global, accused Bear Stearns
of misleading investors by lending faulty mortgage-backed loans
and securities. Moreover, though the financial health of this
mortgage lender was not sound, the investors were kept in the
dark. This led to more than $200 million loss for SRM Global.
However, the plea to seek compensation was turned down by
Judge Robert Sweet in Manhattan primarily due to delay on the
part of SRM Global in bringing forth their claim. Furthermore,
SRM Global did not provide any proof related to the purchase of
the faulty mortgage-backed securities, thereby failing to
satisfactorily substantiate its actual reliance on the
misinterpreted facts and information.
Additionally, JPMorgan has already entered into a nationwide
settlement wherein it agreed to pay $275 million in cash to
shareholders of Bear Stearns to compensate for losses incurred by
them. Surprisingly, SRM Global stayed out of the deal and chose
to sue the company separately.
The dismissal of the lawsuit eases JPMorgan's legal woes to
some extent. We believe that this is a much-needed relief for a
company that has been grappling with litigations related to the
troubled units that it purchased during the financial crisis.
JPMorgan had actually bailed out the mortgage lender, which was
on the verge of bankruptcy.
We have been witnessing JPMorgan going through a troubled time
wherein the company paid hefty fines, accepted faults as well as
initiated programs to enhance its loan review mechanism. The
efforts on the company's part reflect its desperate intend to put
an end to legal issues and thereby focus on its core
Going forward, we remain optimistic about the banking
bellwether's growth prospects based on its strong financial
foundation. Despite the huge legal expenses as well as reserves
to cushion future legal issues, the company posted a profit last
Currently, JPMorgan carries a Zacks Rank #3 (Hold).
Other major banks that are facing legal issues related to
faulty mortgage-backed securities sold before the financial
Bank of America Corp.
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