JPMorgan Chase & Co. (JPM) has reached a $546 million settlement with the trustee of MF Global Holdings Inc. The money will be eventually returned to the customers of the brokerage firm that went bankrupt in 2011.
Under the settlement terms, with the trustee entrusted with the task to liquidate MF Global Inc – the botched broker dealer unit of MF Global Holdings, JPMorgan will shell out $100 million, which will be paid to former MF Global customers. Further, JPMorgan will pay out $29 million of the brokerage's funds held by the bank, while discharging claims on $417 million that was earlier returned to James Giddens – the trustee.
The settlement is yet to be approved by the court. JPMorgan is expected to sustain an expense of about $107.5 million involved with the settlement, inclusive of attorney fees. The remaining settlement amount was largely MF Global money held by JPMorgan.
JPMorgan was the main bank among others that had provided a $1.2 billion loan to MF Global and was one of its chief clearing banks at the time the broker dealer went bankrupt. The bank had retained certain claims on some of the collateral posted by MF Global that led to the legal hazard.
Besides the tussle with JPMorgan, the trustee has also requested the bankruptcy court to authorize a distribution of $250 million to ↓previous MF Global customers who traded on U.S. exchanges and another $50 million to those who traded on foreign exchanges, as per the filing.
MF Global holdings had filed for bankruptcy in Oct 2011, after registering huge losses on account of a massive trading debacle pertaining to Europe’s sovereign debt. In MF Global case, the customers money (nearly $1.6 billion) simply vanished a week before MF Global went insolvent. As mentioned earlier, JPMorgan was handling the funds at that time.
We view the settlement as a prudent measure from JPMorgan as it would have resulted into a costly litigation affair for the bank. MF Global is not the only problem faced by JPMorgan currently. Over the past couple of years, it has been deluged with lawsuits alleging legal malfeasance.
Earlier this week, 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 London Interbank Offered Rate (:LIBOR).
Currently, JPMorgan retains a Zacks Rank #2 (Buy).
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