JPMorgan Chase & Co. (JPM) has finally agreed to settle a class-action lawsuit filed over nearly $17.58 billion worth of mortgage-backed securities (“MBS”) sold by Bear Stearns Cos. The bank will pay $500 million to resolve the case. Bear Stearns was acquired by the company in 2008.
Notably, while agreeing to settle the lawsuit, JPMorgan denied any wrongdoing on its part. The company will be paying an additional amount of $5 million as administrative charges. Also, the lawsuit still requires the approval of the U.S. District Judge Laura Taylor Swain in Manhattan.
Allegations
The case was filed in Sep 2008 by a group of pension funds, including the New Jersey Carpenters Health Fund and the Public Employees’ Retirement System of Mississippi. The plaintiffs alleged that Bear Stearns misrepresented the facts about the underlying loans that were bundled and sold as MBS.
The case accused Bear Stearns of violating federal securities laws by selling MBS that were backed by roughly 47,000 subprime ‘Alt-A’ loans in 14 offerings between May 2006 and Apr 2007. Further, ratings for these MBS were later reduced to ‘junk’ status despite nearly 92% of these being once rated as ‘AAA’ by the rating agencies. Consequently, value of the securities sank and the concerned investors faced losses.
Our Viewpoint
We believe that the latest settlement comes as a step in the right direction for JPMorgan. Of late, the bank has been striving hard to move past the legal issues pertaining to its business conduct. Earlier in the week, it had agreed to pay roughly $100 million to settle allegations for price manipulations in the foreign exchange (“FX”) market.
In the last two years, JPMorgan has paid more than $20 billion to resolve several litigations related to its business conduct in the pre-crisis era. This has significantly impacted the bank’s financial performance. With the company continuing to confront its legal issues head on, we believe that resolution of such cases will aid it focus on the core enterprises.
Currently, JPMorgan carries a Zacks Rank #3 (Hold). Some better-ranked bank stocks include SVB Financial Group (SIVB), Western Alliance Bancorporation (WAL) and Citigroup Inc. (C). All these stocks hold a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
WESTERN ALLIANC (WAL): Free Stock Analysis Report
SVB FINL GP (SIVB): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research