How safe is JPMorgan from future litigation after its $13B settlement?

The deal ends most major RMBS litigation, but no one can offer assurances

JPMorgan Chase (JPM) ironed out details of a record-setting $13 billion settlement with various state and federal agencies over legacy mortgage-backed securities issues Tuesday.

From the get-go, the bank and its representatives told the market the agreement ends most pending civil enforcement investigations into residential mortgage-backed securities issued by JPM and related entities.

But in a conference call with investors not long after the announcement hit the newswires, JPM leaders admitted they could not assure investors that no litigation risk lingers at the bank. Instead, the settlement cleared up most of the bank's existing major litigation — getting it off a big hook and on it's way. And make no mistake — looking at the slew of issues resolved — the bank definitely got a big monkey off of its back.

But analysts are not so convinced. Dick Bove, an analyst with Rafferty Capial Markets, says he's expecting "a lot more people to jump in." He added, "I think the company agreed to the statement of facts — that 11-page document that was released by the Justice Department. Based on the statement of facts, they have agreed that they did underwrite and sell mortgages that fell below their mortgage underwriting criteria."

This alone will create plaintiff shopping, he suggests. The Justice Department also is reserving the right to pursue criminal charges, and there are remaining suits over manipulation of the foreign exchange market and other mortgage issues.

But there's still some debate as to whether by agreeing to the terms of the settlement, JPMorgan has opened itself up to new lawsuits from bond investors or other parties that are not part of this particular deal.

JPM executives told investors the statement of facts is not an admission of guilt.

But the idea of admitting guilt depends on who you ask.

Shortly after the announcement was made, Attorney General Eric Schneiderman, who helped usher in the settlement, characterized it a bit differently. His office says JPMorgan Chase “acknowledges” in a statement of facts “that it regularly misrepresented to RMBS investors that the mortgage loans in various securities complied with underwriting guidelines."

JPM executives eschewed the idea that any statements could be construed that way during a call with investors and said the interpretation of the ‘statement of facts’ depends on who is characterizing it.

The bank also told the market it is well reserved for the $13 billion settlement, but executives were unable to make definitive claims about the possibility of future litigation.

And while prior litigation filed by major state AGs is now resolved, no members of JPM's leadership team could assure investors that all AG risk is off the table for good. Dick Bove noted that AGs who have yet sue could see this as a chance to jump in.

JPM did disclose what known risks are left on its plate. While the deal resolves most outstanding federal and state RMBS issues, a criminal investigation by the Department of Justice is still pending and a narrow set of mortgage risks remain, the bank explained in public documents.

Those outlier risks include possible suits from monoline insurers, class actions and direct purchaser litigation as well as claims over insurance disputes tied to FHA loans, JPM noted in public records.

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