Everyone knows that when Bank of America acquired Countrywide,
it inadvertently picked up a time bomb of mortgage-backed
securities liability. Last summer you could hardly turn on the
computer without hearing about another MBS investor suit
claiming Countrywide (and its purported successor, BofA)
committed securities fraud when it offered MBS notes. And that
was on top of bond insurer suits and investors' breach of
representations and warranties claims.
Now, suddenly, there's a boomlet in MBS claims against
JPMorgan Chase, stemming in large part from its acquisitions of
Bear Stearns and Washington Mutual Bank. On Friday, the troubled
Belgian bank Dexia sued all three in Manhattan State Supreme Court over losses it sustained in its $1.7 billion investment in
Bear and WaMu MBS. The new complaint, filed by Dexia's counsel
at Bernstein Litowitz Berger & Grossmann, follows four suits
Bernstein Litowitz filed this fall against Bear and JPMorgan on behalf of German financial institutions. And as I wrote at the
time, I'm expecting more where those came from.
Moreover, the Gibbs & Bruns investor group that negotiated
the proposed $8.5 billion put-back settlement with BofA is also targeting JPMorgan. In December, the Gibbs group (which notably
includes PIMCO and Black Rock), directed five MBS trustees
overseeing Bear, WaMu, and JPMC trusts to open investigations of the underlying mortgages, searching for breaches of the reps and
warranties the MBS sponsors offered on the loans.
The Bernstein Litowitz suits for Dexia and the German
institutions assert that JPMorgan is the successor-in-liability
to Bear Stearns and WaMu. That's hardly an established fact,
however. (Remember, successor liability remains an issue in BofA MBS litigation as well, which is one of the reasons the Gibbs
group settled put-back claims for $8.5 billion.) Bond insurers
have been out front in litigation against JPMorgan Chase, just
as they have in every phase of MBS litigation. Ambac, for one,
has been permitted to pursue claims against the bank that stem
from Bear's mortgage-origination unit. But JPMorgan's ultimate
responsibility for Bear and WaMu mortgage-backed notes is a long
way from being settled; Syncora's case against the Bear unit,
for instance, doesn't name JPMorgan.
A JPMorgan spokesman declined comment.
(Reporting by Alison Frankel)
Follow Alison on Twitter: @AlisonFrankel
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