Daily Archives: October 3, 2013

JP Morgan Shareholders: I told You RMBS Settlements Would be Mega Billions

Teri Buhl:

Don’t let press reports of JPM adding to its litigation reserves fool you into thinking they’ve been properly setting aside money to pay this hefty bill. Unfortunately most of my peers in the financial press don’t know how to read the tricky accounting language JP Morgan uses to hide their problems and JPM doesn’t tell shareholders how the litigation reserves will be used. Heck, for all we know it could all be set aside to sue Max Keiser because they are sick of his ‘Buy Silver crash JP Morgan’ campaign. The amount of money JPM has set aside and the amount of money they have paid out in rmbs putbacks and litigation is often inaccurately reported or not reported at all because no one can figure it out.

The story these days isn’t really the number JP Morgan will pay, but the payout number compared to the legal reserves they have been booking. This is something I was first to highlight in May 2012 and now we see Bloomberg commentator Josh Rosner calling JPM out on the same issue–which is a good start but everyone of my fellow reporters covering this story should be writing about this at the top of their stories.

You see JPM’s legal reserves hit their bottom line (and their regulatory capital levels) so they don’t want to admit they will have to pay this money until the very last minute. But that’s not really fair to shareholders. In fact we don’t ever get see what is the current amount JPM is holding in their legal reserves. What we see is a reasonable estimate of what COULD be added to their legal reserves and it’s hidden in a footnote. Last quarter that footnote estimated it was ‘reasonably possible’ that around $6.8 billion could be added to legal reserves; but this number doesn’t effect their balance sheet it’s a just an estimate the auditors make them write.

We do see litigation expense, which comes right off the income statement and effects net profit, but that has been really small number this year ($400mn in Q2 and $300mn in Q1). And they don’t break down what is in this litigation expense. It could be taken from their legal reserves bucket or just be Sullivan & Cromwell’s legal bill. We never really know what is being credited and debited.

Robert Christensen of Natoma Partners has been warning his clients about this for over a year now in his very insightful quarterly newsletter.
He told me in an interview today, “It’s been increasingly clear in the last few days that JP Morgan has egregiously been under reserving.” Christensen goes on to point out that their is NO information publicly available in which you can count the current litigation reserves they hold on the balance sheet. That’s because he says the bank reports what is going into the legal reserves but not what is coming out. And the estimates we see in footnotes is not what hits the income statement or capital levels.

“We are seeing very big numbers coming out of the press on what JPM will likely pay the Government for rmbs suits but that’s just the government. What about the $100 billion plus of private rmbs suits that expect a settlement also?” warns Christensen.

And on top of all that the OCC, their bank regulator, and the SEC, their securities regulator, have been allowing JP Morgan to under reserved for RMBS lawsuits and putbacks for years now. It’s like the regulator is now part of the scheme to defraud JP Morgan shareholders.

Christensen wrote in his June newsletter:

Litigation expense recorded in Q1 2013 was $0.3 billion. There was no disclosure of how much of this amount was for litigation reserves or
how much was mortgage related… all such current and future claims are not included in the mortgage repurchase liability, but rather in litigation reserves. However, those amounts have not specifically been broken out and the total legal reserve for private label loan sales has never been disclosed.


Court Rejects Dismissal Bid in Mortgage Case

Court Rejects Dismissal Bid in Mortgage Case

SAN FRANCISCO (CN) – A federal judge rejected loan servicer Aurora’s motion to dismiss a class action claiming it gives home owners in mortgage trouble false hope, ordering both parties into settlement talks.
     Mauder and Alice Chao, Deogenoso and Glorina Palugod, and Maritza Pinel sued Aurora Loan Service in 2011, saying they were offered “workout agreements” that gave them the opportunity to cure their defaults while adhering to a monthly payment plan.
     They claimed they were actually misled into believing that they could avoid foreclosure and get their mortgage loans modified by adhering to the plan, but the payments under the workout agreements were too small to satisfy the money they owed and left them vulnerable to foreclosure.
     U.S. District Judge Saundra Brown noted that in their amended complaint, the five homeowners’ claims remain essentially the same.
     “The new allegations that Aurora did not, and indeed, could not, process a loan modification request during the term of the Workout Agreement merely provide further factual support for the general proposition that Aurora did not allow nor did it have any intention of allowing plaintiffs to cure their defaults,” she wrote. “From plaintiffs’ perspective, the bottom line is that Aurora did not provide a loan modification-or any other workout option for borrowers to avoid foreclosure. Since the gravamen of plaintiffs’ claims remains unchanged, the court finds that the underlying premise of Aurora’s current motion to dismiss and strike is without merit.”


Dutch Rabobank expects imminent Libor settlement

Dutch Rabobank expects imminent Libor settlement

Oct 2 (Reuters) – Dutch lender Rabobank expects to receive a multimillion-pound fine from British and U.S. regulators within a few weeks to settle allegations that its traders helped to manipulate benchmark interest rates.

Two sources familiar with the situation said that a Rabobank settlement with regulators such as Britain’s Financial Conduct Authority, the U.S. Department of Justice and the U.S. Commodity Futures Trading Commission is expected this month.

One source familiar with the matter said that the co-operatively owned bank has been telephoning senior staff about the expected penalty, which would be the fifth slapped on financial institutions since a sprawling global investigation into the rate-rigging scandal began in 2008.


Foreclosure snafu: Bank contractors accused of cleaning out wrong homes

Foreclosure snafu: Bank contractors accused of cleaning out wrong homes

Imagine coming home and finding everything you have is gone.

It’s a hidden side of the foreclosure crisis: If you fall behind in your mortgage and you go into foreclosure, banks will often hire contractors to go to your house and take it over, sometimes breaking in and chucking everything.  But an investigation by TODAY found they’ve made big mistakes.


Emails in Spotlight at Bank of America Trial

Emails in Spotlight at Bank of America Trial

In the summer of 2007, executives at Countrywide Financial Corp. were desperate to move away from the slumping market for subprime mortgages and into higher quality loans.

Their solution was to create a program called the “High Speed Swim Lane”—HSSL, or “hustle”—that pared back checks on loan quality so mortgages could be approved more quickly.

That prompted concerns from some employees. Ed O’Donnell, the former head of underwriting at Countrywide, sent an email that summer with a long list of questions from employees, including, “Does this mean we no longer care about quality?”

The unit’s chief operating officer, Rebecca Mairone, simply responded: “So it sounds like it may work. Is that what I’m hearing?”


JPMorgan Chase & Co : Italian prosecutors seek JPMorgan indictment for Paschi-Antonveneta deal – report

JPMorgan Chase & Co : Italian prosecutors seek JPMorgan indictment for Paschi-Antonveneta deal – report

Reuters) – Siena prosecutors requested that JPMorgan Chase & Co (>> JPMorgan Chase & Co) stand trial for obstructing regulators as part of a wider probe into Banca Monte dei Paschi di Siena SpA’s (>> Banca Monte dei Paschi di Siena SpA) purchase of Banca Antonveneta SpA <BMPSAT.UL>, Bloomberg reported citing people familiar with the matter.

According to the Bloomberg report, prosecutors allege JPMorgan withheld information from Italian regulators about a 1 billion euro ($1.36 billion) financing the New York-based bank arranged for Monte Paschi’s takeover of Antonveneta in 2008.

JPMorgan failed to oversee employees properly, according to the indictment request, Bloomberg reported citing sources.

Prosecutors also are seeking indictments against former Monte Paschi managers for obstructing regulators, market manipulation and falsifying filings, Bloomberg reported, citing people familiar with the matter.


JP Morgan Chase Board Member Admitted “Things We Actually Are Guilty Of”

JP Morgan Chase Board Member Admitted “Things We Actually Are Guilty Of”

JP Morgan Chase director and chairman of the board’s Audit Committee, Laban Jackson, did not cause much of a stir last week in Chicago when he stunningly admitted at an institutional investor conference that “We’ve got these things that we actually are guilty of and we’ve got to fix them.”

On the very day that chairman and CEO Jamie Dimon was meeting with Attorney General Holder in Washington to try and resolve  how many billions the bank would have to pay to settle “these things we actually are guilty of”, one of his chief independent directors  was admitting that the controversial showdown with Uncle Sam was “embarassing for the Board.”