JPMorgan Chase & Co and Credit Suisse Group AG agreed to pay almost US$417 million to settle US regulatory claims they misled investors while selling billions of dollars of investments linked to home loans.
JPMorgan resolved claims that it made misstatements about delinquency data for loans packaged into securities and that Bear Stearns Cos, which the bank acquired in 2008, did not tell mortgage investors it kept reimbursements on soured loans, the US Securities and Exchange Commission (SEC) said in a statement. Credit Suisse was also faulted for disclosures on reimbursements.
For JPMorgan chief executive officer Jamie Dimon, whose firm is forfeiting US$296.9 million in the SEC deal, the claims add to a growing list of regulatory costs from the housing bubble, a botched bet on credit derivatives and an energy-trading probe. Since the middle of last year, the bank also has been sued by state and federal watchdogs over sales of mortgage-backed securities to Fannie Mae and Freddie Mac and loans sold to investors by Bear Stearns.
“Misrepresentations in connection with the creation and sale of mortgage securities contributed greatly to the tremendous losses suffered by investors once the U.S. housing market collapsed,” the SEC’s enforcement chief, Robert Khuzami, said in Friday’s statement.
Another claim focuses on 156 mortgage-backed securities transactions by Bear Stearns from 2005 to 2007. Lenders were supposed to buy back home loans that defaulted early or were defective. Bear Stearns instead negotiated bulk settlements with the lenders and then kept payments for itself without telling investors, the SEC said.
The practice had been reviewed by attorneys for Bear Stearns and top executives, then continued after the firm’s takeover by JPMorgan, Khuzami said.
Dimon, 56, one of the industry’s most forceful advocates, lost stature this year as his bank, the nation’s biggest by assets, juggles investigations and more than US$6.2 billion in trading losses on bets by the firm’s chief investment office. Dimon has said he did the US a favor by buying Bear Stearns and that he might not do such a deal again after costs were boosted by legal and regulatory claims against the business.
Acquiring a company traditionally means taking on its liabilities too, Khuzami told reporters yesterday.
“Here it certainly would not be a right result if JPMorgan was able to retain the ill-gotten gains from this illegal scheme,” he said.
Still, the agency adjusted the penalties because much of the abuse took place before the deal, he said.
JPMorgan and Credit Suisse didn’t admit or deny wrongdoing in settling. The firms agreed to forfeit gains from the misconduct and pay fines. Khuzami said he doesn’t expect to bring claims against individuals in either case. That might change if the investigators uncover new evidence, he said.
“The SEC’s complaint makes allegations under the negligence-based provisions of the federal securities laws and does not include charges of intentional misconduct,” JPMorgan said in a statement.
Credit Suisse, led by chief executive Brady Dougan, agreed to pay US$120 million. It too had engaged in bulk settlements with originators from 2005 to 2010, kept proceeds and failed to tell investors, according to the SEC. The agency also faulted the bank, Switzerland’s second-largest, for failing to make good on obligations to repurchase certain loans that defaulted.