JPMorgan Chase & Co.’s rivals may face government lawsuits claiming tens of billions of dollars in damages tied to investor losses on mortgage bonds after New York’s attorney general filed a fraud lawsuit against the nation’s biggest bank by assets.
A state-federal task force set up this year to investigate misconduct in the bundling of mortgage loans into securities will bring other cases, according to New York Attorney General Eric Schneiderman. Investor losses in the JPMorgan case alone will be “substantially more” than the $22.5 billion cited in his complaint, he said.
“We do expect this to be a matter of very significant liability, and there are others to come that will also reflect the same quantum of damages,” Schneiderman said in an interview yesterday with Bloomberg Television’s Erik Schatzker. “We’re looking at tens of billions of dollars, not just by one institution, but by quite a few.”
Schneiderman alleged that the Bear Stearns business that JPMorgan took over in 2008 deceived mortgage-bond investors about defective loans backing securities they bought. Bear Stearns “systematically failed” to evaluate loans, ignored defects uncovered and “kept investors in the dark” about review procedures and problems with the loans.
The Bear Stearns mortgage unit packaged $212 billion in mortgage bonds from 2003 through 2006, according to the state’s complaint. Losses on $87 billion of those bonds packaged during just two of those years total $22.5 billion so far, it estimated.
The case targets mortgage securitizations between 2005 and 2007 involving Alt A and subprime mortgages, Schneiderman said in a conference call with reporters. It will take further investigation to determine the full extent of the losses, he said.
“There are further losses being incurred,” according to Schneiderman, who called the case a “template” for cases against other issuers of mortgage securities.
New York will use at least some of the money it collects from the suits to reimburse investors, Schneiderman said in the Bloomberg interview.
“The investors who were defrauded deserve to get money back,” he said. “I don’t think there’s any dispute about that. This is a matter of doing justice. If anything, most folks in the U.S. think there were too few strings on the banks that were the recipients of the bailout and the recipients of taxpayer- backed loans.”