has reported that the legal woes at
JPMorgan Chase & Co.
) are expected to lessen soon. The company is in advanced talks
with the Securities and Exchange Commission (SEC) for the
settlement of probes related to the sale of risky residential
mortgage-backed securities (RMBS).
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The allegation pertains to how Bear Stearns Cos. - acquired by
JPMorgan in 2008 - repackaged and sold residential loans to the
investors. The SEC is conducting an inquiry into accusations
against Bear Stearns that claimed that after receiving
compensation from the loan originators for failed mortgages, the
firm did not transfer the same to a trust that was managing RMBS.
Moreover, the SEC is probing disclosures made to the investors
regarding the renegotiated loans.
Further, both the parties of the settlement deal are yet to agree
upon the penalty to be paid and the other conditions to be
fulfilled. However, JPMorgan's fine is not expected to exceed the
penalty paid by
The Goldman Sachs Group, Inc.
) in 2010. Goldman had paid $550 million to settle the SEC
allegation of misleading investors in collateralized debt
obligation (CLO) - Abacus 2007-AC1.
Apart from JPMorgan, the other large banks that are facing the
SEC inquiry for selling risky RMBS include
Credit Suisse Group
Wells Fargo & Company
If the settlement with JPMorgan is finalized, it will be a major
victory for the SEC, which has been investigating the role of
these securities prior to the financial crisis. For JPMorgan,
this would be a breather as it would slightly lower the legal and
regulatory inquiries it has been encountering since the financial
Yet, JPMorgan continues to face many other probes and lawsuits
from the investors and regulators pertaining to its role during
the crisis. Along with these, the company is facing
investigations for the trading debacle it reported in May this
year, its alleged role in rigging the LIBOR rates and for money
JPMorgan currently retains a Zacks #2 Rank, which translates into
a short-term Buy rating. However, considering the fundamentals,
we maintain a long-term 'Neutral' recommendation on the stock.