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NEW YORK (
JPMorgan Chase(JPM - Get Report) is likely finished setting aside capital to repurchase problem mortgages it packaged into securities and sold leading up to the crisis, according to a research report published Thursday.
Following a meeting with bank management, Keefe Bruyette & Woods analyst David Konrad writes that an increasing number of delinquent homeowners whose mortgages were guaranteed by Government Sponsored Entities
Fannie Mae(FNMA) and
Freddie Mac (FNMA) have been catching up on their payments. As a result, the GSEs in those instances no longer have a reason to demand JPMorgan repurchase the securities.
While Konrad believes mortgages lacking the GSE guarantee remain a liability for JPMorgan, he calculates the bank is sufficiently reserved to meet those demands. He estimates JPMorgan has $12.9 billion in reserves, including $7.9 billion for GSE mortgages and $5 billion for non-GSE, or "private label" litigation.
A critical question hanging over JPMorgan, however, is whether the bank will be held liable for mortgages underwritten by Washington Mutual, which JPMorgan acquired from the Federal Deposit Insurance Corp. in 2008. JPMorgan argues it isn't responsible for those losses, while the FDIC contends it is. Should FDIC win the dispute, JPMorgan would be under reserved by about $2.8 billion, according to Konrad's estimate.
In either case JPMorgan's liability for problem mortgage securities is expected to be far less than that of
Bank of America(FNMA), which FBR Capital Markets analyst Paul Miller believes will ultimately see $52 billion in losses.
Written by Dan Freed in New York.
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