Joe Evangelisti, a JPMorgan spokesman, said the New York-based bank would contest the state’s complaint, which is “entirely about” conduct by Bear Stearns. JPMorgan acquired Bear Stearns in March 2008 after a run on what was then Wall Street’s fifth-largest securities firm.
“We’re disappointed that the NYAG decided to pursue its civil action without ever offering us an opportunity to rebut the claims and without developing a full record -- instead relying on recycled claims already made by private plaintiffs,” Evangelisti said in an e-mail.
The case is the first legal action by the state-federal task force set up by President Barack Obama this year to investigate claims related to packaging mortgage loans into securities. The group includes officials from the Department of Justice, the Securities and Exchange Commission and the Department of Housing and Urban Development.
“There are quite a few investigations under way and we will bring cases when they’re ready,” Schneiderman said on the conference call.
JPMorgan was sued by the Federal Housing Finance Agency last year over $33 billion in mortgage securities sold to Fannie Mae and Freddie Mac. The bank is among more than a dozen financial institutions, including Bank of America Corp. and Goldman Sachs Group Inc., sued by the regulator over similar claims.
The JPMorgan case involves securitizations by JPMorgan, Washington Mutual and Bear Stearns, according to court papers. JPMorgan acquired Washington Mutual in 2008.
The top issuers of mortgage securities without government backing in 2005 included Bank of America’s Countrywide Financial unit, GMAC, Bear Stearns and Washington Mutual, according to trade publication Inside MBS & ABS. Total volume for the top 10 issuers was $672 billion.
Countrywide ranked as the top issuer of the securities in 2005, 2006 and 2007, when the worst-performing debt was created, according to Inside MBS & ABS. The lender created $405 billion of the $3.04 trillion of bonds sold in those years.
JPMorgan, with Bear Stearns and Washington Mutual, are facing lawsuits and claims against mortgage-related deals totaling $120 billion, the bank said in a regulatory filing. In the first quarter, JPMorgan had a $2.5 billion pretax expense for additional litigation reserves, mostly mortgage-related, a charge that knocked 39 cents a share off its profit. The quarter’s actual litigation expense was $2.7 billion.
As of March 31, the bank estimated its outstanding mortgage repurchase liability at $3.5 billion, an amount already recognized in earnings, according to the quarterly filing. Litigation reserves may need to be increased, although probably not this year, the bank said.