JPMorgan rivals face billions in damages after N.Y. case

Competitors

Among JPMorgan’s competitors, Citigroup Inc., the third-biggest U.S. bank by assets, “continues to cooperate fully” with regulators and law enforcers in response to subpoenas and information requests related to its mortgage activities, the bank said in its latest quarterly filing. It didn’t specify the cases.

Goldman Sachs Group Inc., the fifth-biggest U.S. bank, has had subpoenas and requests for information from state and federal law enforcers and regulators over mortgage-related securitization and subprime mortgages and is co-operating in the inquiries, the bank said in its latest quarterly filing.

A Securities and Exchange Commission probe of $1.3 billion of subprime residential mortgage-backed securities underwritten in 2006 by Goldman Sachs ended without enforcement action, the bank said.

Recent filings by Bank of America, the second-biggest U.S. bank, mention that the bank receives subpoenas without specifying from whom or what for.

Citigroup, Bank of America and JPMorgan each estimated their litigation liabilities might at worst exceed their estimates by $4 billion to $5 billion.

Settlement Estimate

It may cost JPMorgan as much as $3 billion to settle the New York case, although the cost could be higher depending on what the state ultimately requests, said Charles Peabody, a bank analyst with Portales Partners in New York.

“The language is so vague on what they’re defining in the way of damages, it’s so hard to know,” he said in an interview.

Peabody said his estimate is conservative and based on similar cases by private investors against Bank of America and other lenders, which have generally settled for about 2 percent to 3 percent of the original investment amount.

Since the state’s complaint doesn’t specify the timeframe, number of securities or amount of damages sought, Peabody based his estimate on the peak years of the housing boom from 2005 through 2007. Bear Stearns issued roughly $162 billion in mortgage bonds over those three years, according to Peabody’s calculations.

“It’s very open-ended,” Peabody said. “Until you define it, everything is just that, an estimate.”

A settlement may be reached for as little as $2 billion, Peabody said. He raised his estimate for JPMorgan’s third- quarter litigation costs to $1.6 billion from $500 million and cut his estimate for the bank’s earnings, which are scheduled to be released Oct. 12, by 17 percent to 95 cents a share.

The case is People of the State of New York v. J.P. Morgan Securities, 451556-2012, New York State Supreme Court (Manhattan).

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