JPMorgan Chase & Co.
) efforts to resolve mortgage-related issues have received a
fresh boost. The bank has announced a settlement deal with nearly
21 institutional investors. The company will pay $4.5 billion to
investors who incurred losses on 330 residential mortgage-backed
securities (RMBS) trusts issued by JPMorgan and Bears Stearns
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Additionally, these RMBS were sold to the investors during
2005-2008. However, the compensation does not pertain to RMBS
sold by Washington Mutual. Both Bears Stearns and Washington
Mutual were acquired by JPMorgan in 2008.
The major institutional investors include
), MetLife, Inc., Pacific Investment Management Company, LLC,
The Goldman Sachs Group, Inc.
), Fannie Mae, Freddie Mac, Deutsche Bank AG, U.S. Bancorp, The
TCW Group and Wilmington Trust Co.
According to the agreement, the investors have time until Jan 15,
2014 to agree to the deal, which can further be extended to Mar
15. Notably, the settlement awaits the approval of the court.
JPMorgan has now become the third financial firm to agree to a
settlement deal with institutional investors over the sale of
risky RMBS preceding the financial crisis. Earlier in 2012,
Residential Capital - the former mortgage lending division of
Ally Financial - agreed to pay $7.3 billion to investors.
Similarly, in 2011,
Bank of America Corp.
) declared an $8.5 billion settlement deal with 22 institutional
investors, which is now awaiting court approval.
In the past few months, JPMorgan has settled various charges
relating to the sale of home loans and MBS, its 'London Whale'
debacle and alleged manipulation of electricity prices in
California and the Midwest region, among others. However, the
company still faces several lawsuits concerning the sale of risky
Hence, JPMorgan increased its litigation reserves by $9 billion
to nearly $23 billion at the end of the third quarter.
Additionally, the bank anticipates legal losses (over and above
its existing litigation reserves) of about $5.7 billion as of Sep
At present, JPMorgan carries a Zacks Rank #3 (Hold).