Not only is The Morgue drowning in interest rate swap losses from its CIO unit, but the SEC has issued JP Morgan a Wells notice over Bear Stearns’ mortgage backed securities violations.
Why you might ask, is a Wells Notice over MBS fraud a monumental concern for JP Morgan when the SEC is likely to slap JPM’s wrist over the issue for a $50 million fine ?
Well, Wells notices happen to be discoverable in civil litigation. In JPM’s Mortgage-Backed Securities and Repurchase Litigation note on the 10-Q the bank filed on Thursday, JPM states: “There are currently pending and tolled investor and monoline claims involving approximately $120 billion of such securities.”
MBS analyst Teri Buhl writes: ‘The face value amount of securities tied to the monoline suits against JPM are significant because there was a recent ruling in a Countrywide RMBS suit that ruled if plaintiffs can prove there were miss-representations in the bonds then the entire amount of the bond has to be bought back…not just the amount that defaulted or caused a loss.‘
Think the high power legal teams that are currently suing JPM over $120 billion in fraudulent MBS slicing and dicing will be interested in settling for a measly $2-$5 billion now that the SEC has essentially confirmed that fraudulent activity has occurred by issuing a Wells Notice? We don’t think so either, and now JPM HAS to settle. We are talking about massive settlements in the multi-billion dollar range if JPM wants to keep these suits out of court.
The SEC Wells Notices means that JP Morgan is staring at the distinct possibility of having to buy back $120 BILLION in now worthless mortgage backed securities if any of these suits ever made it to court, ensuring massive settlements WILL OCCUR.