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JPMorgan to Enter $6B Settlement

Zacks Equity Research

Banking bellwether JPMorgan Chase & Co. (JPM) will likely enter into another settlement involving a huge sum of money. Though not officially confirmed, as per reports in The Financial Times and The Wall Street Journal, the company is in negotiation with a group of institutional investors claiming nearly $6 billion.

It was alleged that JPMorgan along with its acquired units, Bear Stearns and Washington Mutual, adopted faulty mortgage practices which resulted in huge losses for these investors. The faulty mortgage backed securities sold by the bank did not meet the credit quality criteria and misled investors.

The claimants include asset mangers like BlackRock, Inc. (BLK) and Neuberger Berman Group LLC. Though the settlement talks have been continuing for the last two years, it gained momentum recently.

Apart from the aforementioned settlement, the company is prepared to resolve matters with various other agencies by entering a multi-billion dollar settlement. Though the exact amount that JPMorgan will be required to pay is not known, going by market rumors, it could be around $13 billion.

The major probes being conducted by these regulatory agencies pertain to cases filed by the New York AG and the Federal Housing Finance Agency (:FHFA). These cases are primarily related to the mortgage-backed securities sold by JPMorgan to Fannie Mae (FNMA) and Freddie Mac (FMCC).

JPMorgan has been embroiled in legal hassles for quite some time. The bank’s monetary reserves, kept apart for meeting legal expenses, have weighed on its third-quarter earnings as well. Reversing its earnings streak, JPMorgan posted a loss of 17 cents per share.

However, even as JPMorgan struggles to cope with rising expenses, we believe that the banking giant will regain its position in the future. This will likely be due to improvement in trading revenues, retail and investment banking performances as well as credit quality.

Currently, JPMorgan carries a Zacks Rank #4 (Sell).

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