JPMorgan Gets Major Reprieve

Zacks

Bringing in great relief for JPMorgan Chase & Co. (JPM), the U.S. District Judge dismissed a major portion of the lawsuit filed by Brussels based bank Dexia N.V. /S.A. The lawsuit accused JPMorgan of deliberately selling perilous mortgage backed securities worth $1.6 billion to Dexia during the housing boom prior to the 2008 financial meltdown.

Judge Jed Rakoff allowed Dexia to proceed with only 5 claims while dismissing nearly 60 claims. This will significantly slash the potential legal settlement to $5.7 million from $774 million. The judge is yet to elucidate his rationale on quashing the lawsuit.

In 2012, the French-Belgian bank Dexia dragged JPMorgan to court along with its affiliates – The Bear Stearns Companies, Inc and Washington Mutual, Inc. As per the subsidiary of Dexia – FSA Asset Management LLC – the defendants had a clear idea of the risks associated with the mortgage securities. However, JPMorgan sold massive quantities of these securities to Dexia to reduce its own exposure.

The Dexia lawsuit attracted immense media glare after a series of emails were discovered, which suggested that the bank despite being aware of the associated risks, sold massive quantities of these securities.

The dismissal comes as a major triumph for JPMorgan. The company has been deluged by a series of lawsuits stemming from the sale of the mortgage securities prior to the last financial crisis. In addition, the company faces a plethora of other lawsuits alleging legal malfeasance. Last month, Freddie Mac dragged JPMorgan and a dozen other banks including biggies like Bank of America Corporation (BAC), UBS AG (UBS) and Credit Suisse Group AG (CS) to court accusing them of manipulating the London Interbank Offered Rate (:LIBOR).

Over the last couple of years, JPMorgan has been shelling out millions to settle litigations. In Nov 2012, the company paid $296.9 million to settle claims by the Securities and Exchange Commission over similar charges. The legal settlements have become a headache as they erode a considerable portion of the profits. However, JPMorgan’s strong fundamentals continue to act as a positive catalyst.

JPMorgan currently carries a Zacks Rank #2 (Buy)

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