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Uncle Sam Comes Callin', Asks Jamie Dimon For Another $6 Billion

Tyler Durden's picture





 

The US is demanding a sum of $6 billion - the total loss associated with the "London Whale" debacle - in compensation for JPMorgan's mis-selling of mortgage-backed-securities. The FT reports that, unsurprisingly, the bank is resisting the payment, which would be its single biggest penalty in a catalog of expensive run-ins with US authorities and one of the largest post-crisis settlements by any bank. The FHFA said the bank falsely claimed that loans backing $33bn of mortgage-backed securities complied with underwriting guidelines and that it "significantly overstated the ability of the borrowers to repay their mortgage loans". It seems, perhaps, it is time to trade in the old jewelry for some new Kremlin cufflinks (the enemy of your enemy is your friend?)

 

Via The FT,

US authorities are demanding JPMorgan Chase pay more than $6bn to settle allegations it mis-sold securities to government-backed mortgage companies in the run-up to the financial crisis, according to people familiar with the discussions.

 

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It dwarfs the amount that JPMorgan is expected to pay to settle regulatory action over its “London whale” trading scandal and exceeds the penalties for its alleged manipulation of commodities markets.

 

The Federal Housing Finance Agency, a government regulator, sued JPMorgan and 17 other banks in 2011. It said the bank falsely claimed that loans backing $33bn of mortgage-backed securities complied with underwriting guidelines and that it “significantly overstated the ability of the borrowers to repay their mortgage loans”.

 

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Although JPMorgan is refusing to pay the amount requested by the government, it expects to settle for billions of dollars, according to people familiar with the situation. The mounting potential price tag was partly responsible for a warning earlier this month that its legal bill could exceed existing reserves by $6.8bn.

 

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The notional value of securities sold by JPMorgan are five times bigger than those sold by UBS. Unlike the UBS lawsuit, the case against JPMorgan and some of the other banks alleges fraud, which the government says makes the offence more serious and strengthens its claims for substantial damages.

 

One point of contention is that a large proportion of the securities were sold by WaMu and Bear Stearns, which JPMorgan bought with the support of the government as they teetered during the crisis. Jamie Dimon, JPMorgan chief executive, has previously complained that the bank should not be punished for the alleged past misdeeds of those companies.

 

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JPMorgan and the FHFA declined to comment.

 


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