Is PIMCO The Fed's "Agent Provocateur" In Scuttling Billions In Legal Putback Claims Against JP Morgan And Bank Of America?

Tyler Durden's picture

Perhaps it is time for JP Morgan to revise its estimate for putback liability claims. As a reminder back in October, it was none other than JP Morgan which said: "We estimate putback risk to be approximately $23-$35bn for agency mortgages, $40-80bn in non-agency and roughly $20-30bn for second liens and HELOCs. However, there are a number of reasons why these estimates are on the high end, including losses already taken and loss reserves established." Well, there appear to be a number of reasons of why these estimates may have been on the very low end as well, the first one being that the bank itself just announced "it faces up to $4.5 billion in legal losses, in excess of its established litigation reserves, should its worst-case legal scenario occur." And if JP Morgan is seeing billion more in putback exposure, then what should Bank of Countrywide Lynch say, which just reported that the amount of debt which is being put against the firm for fraud of various types has just doubled from $46 billion to $84 billion. Luckily, according to a DebtWire report, PIMCO and BlackRock are actively doing the Fed's bidding in attempting to form a splinter group within the putback litigants and to settle with BofA for a nominal charge. Will the Fed be once again successful at subverting justice?

From the WSJ:

The SEC has requested the additional disclosures on what banks could potentially face on legal losses on top of what they have set aside. The banks all face a rash of lawsuits regarding the financial crisis and collapse of the housing market, particularly from investors who purchased mortgage-backed securities that later tumbled in value.

The bank already accounts for what it considers a reasonable estimate of losses in a litigation reserve, a number it doesn't make public. The $4.5 billion figure would be a worst-case scenario on top of that number. It said the additional losses could be zero, though it could also go higher as the bank can't yet make estimates on the more than 10,000 legal proceedings it faces.

Those who have been following the recent attempt by various plaintiffs to claim fraudulent misrepresentation using statistical sampling, which Allstate, and its lawfirm appears to have perfected, this will come as no surprise. Neither will it be a surprise that the litigation floodgates, as we have claimed since September, are about to blow open and drown the bank in hundreds of millions if not billions of legal settlements and fees.

J.P. Morgan was also the latest bank to include a disclosure that it has
received "a number of subpoenas and informal requests for information"
about its mortgage business. The bank said those requests include
questions about its underwriting of mortgage-backed securities. The bank
said some of the investigations also arose after it announced a
foreclosure moratorium last year when it found problems in its
foreclosure practices.

Ironically, it is the biggest mortgage lender in the US, Bank of America which continues to blatantly misrepresent its putback exposure:

Last week, Citigroup Inc. warned the high end of its worst-case scenario was $4 billion, while Bank of America Corp. warned of up to $1.5 billion in additional losses and Wells Fargo & Co. said its extra disclosure was $1.2 billion above its reserves.

We wonder whether BofA's number accounts for the just disclosed doubling in putback claim notional against the bank as Bloomberg summarized:

A bondholder group seeking reimbursements from Bank of America Corp. over soured home-loan securities said the amount of debt it holds grew to $84 billion after more investors joined the dispute.

The number climbed from about $46 billion in October, according to the group’s lawyer. The investors have had “enough progress” in negotiations with Bank of America and Bank of New York Mellon Corp., which acts as trustee of the debt, to warrant continued talks, Kathy Patrick, a partner at Houston-based Gibbs & Bruns LLP, said today in a telephone interview.

Bank of America said Feb. 25 there were 225 mortgage deals in dispute, up from 115 in October. It didn’t provide a dollar value for the securities. Investors challenging the bank include Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York, people familiar with the matter said in October.

The “careful approach” of Patrick’s investor group doesn’t mean it will accept less than it’s entitled to, she said, dismissing the idea that her clients will limit their settlement goals because of their other business dealings with Bank of America.

What Bloomberg did not however discuss is the previously reported tidbit by DebtWire that Pimco (and naturally BlackRock) may be attempting to derail the attempt to actually extract some real damages from BofA. We quote from the piece by Allison Pyburn and Adelene Lee:

A growing faction of mortgage bond investors are rallying to fight a potential “sweetheart” deal between Bank of America and a handful of friendly funds related to Countrywide Financial’s mortgage buyback saga, Debtwire reports. The investors fear talks led by some of the nation’s largest fund managers, including PIMCO and BlackRock, along with Freddie Mac and the New York Federal Reserve, could bind them to pennies-on-the-dollar payouts even though contractually Countrywide’s owner is required to repurchase all flawed mortgages at par.

In Countrywide deals, the number of mortgages that differ substantially from their descriptions is estimated between 40%-45% to as high as 70% of the balance, according to one of the sources involved and a source familiar with the lender’s collateral. An agreement struck between the big boys could bind all non-agency mortgage backed securities issued by Countrywide, BofA and potentially Merrill Lynch, should trustees for the deals participate, said David Grais, a partner in New York law firm Grais & Ellsworth, which represented Greenwich Financial in a buyback case against Countrywide in 2007. Such a deal would likely prevent mortgage bond investors from pursuing a higher payout in the future, Grais said.

Between 2004 and 2007 Merrill Lynch and Countrywide issued at least 491 deals totaling USD 414bn. The agreement would mirror the USD 3bn deal BofA arranged with Freddie and Fannie Mae in January. All of the mortgage bond investors, including PIMCO and BlackRock, initially banded together to pursue full reimbursements for bad mortgages sold into the Countrywide mortgage deals they bought, the second source involved said…The investors found evidence of the so-called servicer self-dealing in 200 RMBS deals holding USD 200bn in mortgages, the sources said…The evidence would have armed bond investors with the arsenal to declare BofA in default of its Countrywide servicing contracts, stripping it of its servicing rights, while revealing information that would have resulted in untold amounts of repurchase requests, the source said. BlackRock and PIMCO, however, switched course…The BlackRock and PIMCO-led faction turned to Kathy Patrick, a partner in Houston, Texas-based law firm Gibbs and Bruns, and employed several tactics to recover their losses – but balked at using the evidence, according to the source…Because it declined to use the allegedly damming evidence, the PIMCO group’s attempts to negotiate with BofA has been labeled as “unleashing a dog with no teeth”- - partly to fulfill their fiduciary duties to their own investors while also ensuring BofA’s financial strength, the two sources, a third with knowledge of the situation and a lawyer following the dispute said...BlackRock holds an estimated USD 3.4bn of BofA equity, and BlackRock, PIMCO and fellow signatory Western Asset Management Co. maintain significant government ties through the Public-Private Investment Program (PPIP) funds they run…The faction led by PIMCO and BlackRock purport to have at least that much standing in USD 47bn of Countrywide mortgage bonds. The opposition, meanwhile, is gaining momentum by soliciting more foreign banks to join the movement, Frey said.”

In other words, the Fed, through PIMCO and Blackrock appears to be aggressively attempting to sabbotage efforts to extract anything more than a token settlement from BofA (and thus the entire mortgage servicer industry). Luckily, as more and more institutions (all of whom were guilty of taking the world's biggest liar and fraud's word at face value) join in the fray, the ability of PIMCO to do the Fed's bidding gets progressively more diluted. We can only hope that for once the Fed will not get its way.

h/t MM

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max2205's picture

Any day now the tribunals will begin.....wait for it....wait

MarketTruth's picture

Naaa...  and the Fed will POMO enough 'profits' to them make up for this 'loss'.

topcallingtroll's picture

I thought Pimco had a lot of mbs exosure. Does anyone know the number? What could they possibly get in return for sacrificing the right to a bigger settlement? These guys arent stupid. I dont think the amount they make frontrunning the fed comes close does it?

prophet_banker's picture

It is not a matter of getting the most return, it is more about exposing the fraud in a counter party, that you have ownership in. . .  they would rather see fraud swept under the rug than have it introduced as EVIDENCE

disabledvet's picture

i see you didn't just fall of the turnip truck.

buzzsaw99's picture

What could they possibly get in return for sacrificing the right to a bigger settlement?

You obviously aren't in "the big club". Neither was Bear Stearns. Capice?

Jason T's picture

Would not be surprised if Greenspan is acting as consultant to Pimco on this one too.

Harmonious_Dissonance's picture

wow! Great link, but now I fear even more for the future...theres a digital dollar flood coming.

prophet_banker's picture



can't believe this sh*t bankers get away with-------During a 30-minute discussion on banks several months before the global credit crisis, Greenspan's ``brilliance in terms of forecasting the potential for exactly what happened was a big money saver for us,'' Bill Gross at Pimco

Logans_Run's picture

That fucking Gross!

Racer's picture

28 February 2011

A string of British banks have been targeted by protestors over the weekend, with branches up and down the country taken over by activists demonstrating against tax avoidance, bonuses and cuts to public spending.

Members of UK Uncut descended on more than 40 branches of the Royal Bank of Scotland (RBS), Lloyds and NatWest to set up homeless shelters, laundry services and walk-in clinics to bring attention to the social impact of government cutbacks.

"The government is making a political choice to reduce the deficit by making ordinary people pay with job losses and savaged services," said protestor Aisha Atkins. "We are transforming the banks ... to show that it's our society that's too big to fail."

Outlets in Liverpool, Birmingham, Manchester and Cardiff were also affected. A spokesperson for RBS stated that the bank accepted peaceful protests, but was keen to minimise disruption to customers.



Yes_Questions's picture

"We are transforming the banks ... to show that it's our society that's too big to fail."



Is there a For Dummies version of this?

Bob's picture

They've just launched a US organization.  Stay tuned for fun.

Yes_Questions's picture

and I was about to edit for a US Version..


Good on You!

prophet_banker's picture

HOLLY cow, they trying to give people good ideas?


  1. UK Uncut - Wikipedia, the free encyclopedia UK Uncut is a protest group started in October 2010 to protest against tax avoidance in the UK and to raise awareness about cuts to public services. They use direct action to get their message across, often closing down high... - Cached
disabledvet's picture

all part of the "bailout brigadoons" as i recall.

TooBearish's picture

Will the Fed be once again successful at subverting justice?


You can bet your pippy they can! BTFD!

Yes_Questions's picture

Thats right.  All they have to do is substite "payments" on non-existent or fraudulently rated/bundled loans within the securities that are otherwise non-performing..


There, justice averted.

Yes_Questions's picture

Take your highest estimate of putbacks, then double it!

Rinse and repeat.




Hearst's picture

CNBC mupets give out some truthful info on Silver.  Watch the guy at the end blurt out about the Asians taking delivery of SLV for physical.  Nobody knows how to react and just laughs like iddiots.|headline|quote|text|&par=yahoo

SashaBelov's picture

Looks like they all became shizophrenic, when they've realized that there is a physical demand for 127% of physical supply. This freaking laughting attack may be repeated when they realize that lets say, bank of america is on the way to bankruptcy... and after them maybe even CNBC's owner GE :)

Cognitive Dissonance's picture


GE doesn't own CNBC anymore. Do a Google search for "Comcast + CNBC".

Cognitive Dissonance's picture

Whoops, someone went off script.

Ha ha ha ha.

prophet_banker's picture

so it's a race to default, will it be SLV and the GLD or the COMEX?  China's placing bets?

disabledvet's picture

apparently it's "US military will win" if China is placing said "bet" as reported just here just today ("China still number one in Treasuries".)  Insofar as numbers go "the US and Europe stand alone in not having massive inflations that result in immediate and massive social unrests."  I don't think it's because "they report their statistics more accurately outside of Europe and the US" either.  The movie was "There will be Blood" and now "there is."  This fact changes nothing of course.

Ned Zeppelin's picture

Will the Fed be once again successful at subverting justice?

um......yes    I think this whole thing smacks of street level 3 card monte. 


New_Meat's picture

bbbbbuuuutt..... all of those sssssecuritiezzz were AAAA AAA by Fannie and Freddie.  Thhhhey sais so.  Annnnnd Bawwwwney Fwwwwank ssssaid that they weah all ghood.


sangell's picture

"An agreement struck between the big boys could bind all non-agency mortgage backed securities issued by Countrywide, BofA and potentially Merrill Lynch, should trustees for the deals participate..."

Hmmm,and who is the big trustee? Bank of New York Mellon. And what does Bank of New York Mellon want? It wants to join the derivative dealers cartel controlled by the big banks. Just a lousy thought.

Buck Johnson's picture

Their dead on, and PIMCO and the others where told to sabotage this in order to keep BoA "solvent" and to keep the Fed/Obama administration from having to go to congress and ask for another 750 billion dollar bailout.  I really don't see how they are going to derail this with more and more institutions getting in on the other faction.  Because the evidence does show that they have been doing illegal stuff and that by law they should get full reinbursment.  The funny thing is that CNBC and other financial and media outlets on television hasn't been covering this soon to be big black swan.

prophet_banker's picture

[[investors challenging the bank include Pacific Investment Management Co., BlackRock Inc. and  the Federal Reserve Bank of New York, people familiar with the matter said in October.]]

once i see the fed in on this, you know there is going to be a settlement, and swept under the rug

Racer's picture

The FSA have recently fined RBS and NatWest and a Which? article stated:
"Recently in an investigation by the FSA, 53% showed deficient complaint handling; 62% showed a failure to comply with FSA requirements on timeliness and disclosure of Ombudsman referral rights; and 31% failed to demonstrate fair outcomes for consumers. "


"Following this RBS and NatWest agreed to make significant changes to their complaints handling arrangements."


oh sorry I am in EXTREME PAIN from this revolting response

ROFIA  a new term  Roll On Floor In Agony

Seasmoke's picture

then the people will have to fight them in court , every single mortgage holder

gwar5's picture

There's no end to the slimballing and back scratching -- they're TPTB.

PIMCO is going to get big favors from the Fed after this.

vote_libertarian_party's picture

Ok, I missed the link.  Can't the non PIMCO / non Black Rock group go ahead with their own 100% putback lawsuit?


If PIMCO and Blackrock want to accept a 1% putback let them split off into their own group.


Why does everybody have to accept the PIMCO deal?

disabledvet's picture

this does involve "States Attorney's General" and therefore "can't so easily be poo-pooed."  The original "bad line" from Morgan was "4 to 6 weeks" so this article is in fact being "charitable" to "the bank of banks."  of course "the states' AG's" after "going after the banksters" also "immediately stated their wish for a negotiated settlement" of said..."fraud" for lack of a less obvious reality.  Point being "we've been down this road before."  So let's cut the CNBC dick-sucking crap and as ask "is national bankruptcy a better option"?  The bankers are asking it...i gurantee it.  We should ask it too.

rlouis's picture

This morning I watched 'Moral Hazard' going backwards 100 miles per hour into the future.  Crack up is coming soon.

Problem Is's picture

Hey Jamie, who's going to bat lead off on Bastille Day?

You, Lloyd or the PimPs at PIMPCO?

moneymutt's picture

think of the deals being made between PIMCO, Blackrock, insolvent banks ( you know BofA had some deal to swallow Countrywide) the FED. Think of the money. Think of all the money, 10s of billions at a minimum being tossed around. 

Meanwhile the big thing on the news is whether someone with a college degree who works 9 months out of the year with snot nose brats should make 60k and get a pension and health care benefits and whether they should have protections to unite together to get more money from the state...what uniting is PIMCO and FED doing, and the FED, even tho we don't control them, its our freaking money they throw around....I remember 30, 40 years ago in the white working class neighborhood I grew up in, a guy could walk out of high school, start working at a factory and get a simlar type of salary, be able to easily afford a house, raise a family of four without his wife working, get full medical, and get a very nice pension ( without saving), go on student loan debt, house paid off in 20 years, cabin up north and he was the second generation doing this! 

We are arguing over scraps because there is practically 20 percent unemployment out there. Meanwhile, the FED could wipe out the budget deficits of every state for next three years for far less than a small portion of what the banks got in 2008, let alone all this other crap going on behind scenes.

Bob's picture

You make it sound like the people running the show are not really on our side!  Well, at least they direct our attention to folks within our reach upon whom we can righteously vent our frustration.  We can even use Wall Street Speak and make it sound like the indisputably responsible and necessary thing to do. 

Austerity for working Americans!  And the unemployed, too.'s picture


At http://www­.wallstree­tclassacti­ we organize a class action against the banks, the ratings agencies and other financial institutio­­­­ns involved in staging the colossal securitiza­­­­tion fraud and subsequent­­­­ly crashing the economy and resulting in over $5 Trillion in asset losses in the US alone. Wall Street monopolist­­­­ic monstrosit­­­­ies have destroyed the fabric of our society and broke our laws, making a mockery of fiscal prudence, ethics and justice. Even our very government is controlled and manipulate­­­­d by this highly illegal banctel, where bank executive officers "retire" or transition into various government regulatory and controller­­­­ship positions, futher aiding and abetting the ongoing fraud. And when the overlevera­­­­ges casino style betting and back-hedgi­­­­ng finally tipples over and out of control, the losses are effectivel­­­­y socialized­­­­, while the injured parties are thrown out on the street. This is way worse of a "socialism­­­­" than a most convoluded and abused government wellfare program would be. It's an unsult to injury, and uninhibite­­­­d and open contempt for our laws. It is clear as day that the government will not prosecute the crooks, but we the people will. United we stand.