On Tuesday, the US Bank NA, a unit of U.S. Bancorp (USB), filed a lawsuit against JPMorgan Chase & Co. (JPM) for breaching representations and warranties. The complaint lodged claims that the company misrepresented documents related to the sale of over $95 million in mortgage-backed securities marketed in 2005 by the former Bear Stearns Cos. Bear Stearns was acquired by JPMorgan back in 2008.
US Bank NA, which acted as the trustee for Bear Stearns Asset Backed Securities Trust 2005-4, alleged that JPMorgan issued misleading statements and omissions related to the mortgage-backed securities and has concealed risks associated with the securities. The company desires to compel JPMorgan to repurchase underlying mortgage loans, as the bank has infringed the representations and warranties regarding the Securities Trust 2005-4.
US Bank NA has also sued Bear Stearns and its unit EMC Mortgage Corp. The lawsuit has been filed in the New York State Supreme Court in Manhattan. The trustee is demanding for the damages.
Last week JPMorgan, along with Ally Financial Inc., was sued by HSH Nordbank AG, a German lender. The complaint lodged claimed that the companies misrepresented documents as an underwriter in the sale of $293 million in mortgage bonds.
HSH Nordbank came with allegations that JPMorgan, Ally and other defendants issued misleading statements and the documents used in this transaction contained untrue statements or omissions related to loans backing the securities. These misrepresentations of the risks provoked investments, which have turned into losses.
Earlier in September, German lender IKB Deutsche Industriebank AG also sued JPMorgan for the sale and breach of contract over the sale of mortgage-backed securities by misrepresenting documents.
Among other banks, Citigroup Inc. (C),The Goldman Sachs Group Inc. (GS) and M&T Bank Corp. (MTB) have also been accused for similar lawsuits that misrepresented documents related to mortgage-backed securities and other losses in 2011.
The continuous surge in the number of lawsuits will dent banks’ reputation and financial results. However, such legal actions may bring some amount of relief to the affected investors.
Shares of JPMorgan currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. Moreover, considering the fundamentals, we maintain a long-term Neutral recommendation on the stock.
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