Home ListingJuly 21, 2015

JP Morgan in $388M MBS Settlement

Two pension funds are among investors that have settled with the investment bank over the sale of mortgage-backed securities.

Reported by Featured Author

JP Morgan Chase has paid $388 million to settle a lawsuit brought by pension investors over mortgage-backed securities sold before the financial crisis.

The case was brought by investors including the $2.1 billion Fort Worth Employees’ Retirement Fund and the $1.8 billion Laborers’ Pension Trust Fund for Northern California.

According to Reuters, the lawsuit alleged that the investment bank had misled them regarding the underwriting, appraisals, and credit quality of loans backing residential mortgage-backed securities (MBS). In total the MBS contracts in question were worth $10 billion.

JP Morgan maintained that the underperformance of the investments was down to the economic downturn rather than the specific investments. Following the collapse of Lehman Brothers in September 2008, the MBS certificates’ value fell to 62 cents in the dollar or less, Reuters reported.

In 2013 the bank agreed to a separate settlement of $13 billion with the US Department of Justice, after it alleged JP Morgan had misled investors about the security of MBS investments. Bank of America agreed to pay the Department of Justice and homeowners $16.65 billion in August last year over MBS sales.

The bank’s settlement with the pension funds is the latest in a series of major out-of-court agreements between institutional investors and organizations responsible for selling and rating MBS.

Earlier this year, California’s two biggest pensions recovered $324 million from credit rating agency Standard & Poor’s and its parent company McGraw Hill Financial. In January, JP Morgan reached a preliminary $500 million settlement with a group of pensions over MBS sales by Bear Stearns, the company it acquired in 2008.

In 2012 and 2013, Dutch pension giant ABP settled a series of cases related to MBS, including with Goldman Sachs and Ace Securities—a unit of Deutsche Bank—having invested millions of euros in the asset class.