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Jamie Dimon's Bank of America Moment: Street Whispers

Just last week, Bank of America agreed to A $2.43 billion settlement of a class action lawsuit by investors, alleging that the company and "certain of its officers and directors" made misleading statements heading into the Merrill deal's completion in January 2009."

JPMorgan Chase CEO James Dimon said in January 2009 that the company was "we are doing our part to help stabilize the financial markets and hasten recovery," as the company "assumed risk and expended resources to assimilate Bear Stearns and Washington Mutual."

We now see that the risk from JPMorgan's 2008 acquisitions continues to increase, four years on.

Bank of America's other major credit crisis acquisition was Washington Mutual, and BAC reported that during the second quarter alone, mortgage repurchase demands against the company rose by 41% to $22.7 billion, as of June 30.

JPMorgan faces far less putback demands from mortgage-backed securities investors, but the risk is still significant, and has the potential to grow. The company reported that as of June 30, there was $149 billion remaining in mortgage loans securitized from 2005 to 2008, and $47 billion of that total was past due 60 days or more, with $16 billion of the problem loans originated by Washington Mutual. JPM said that its "recognized mortgage repurchase liability" as of June 30 was $3.3 billion, declining from $3.6 billion as of Dec. 31.

While JPMorgan indicated this morning that it would fight Schneiderman's charges, it will be interesting to see what Dimon has to say when the company kicks off earnings season for the big banks on Oct. 13. Maybe after Schneiderman milks the lawsuit on television for all it's worth, the company will settle for a relatively small sum.

Rochdale Securities analyst Richard Bove reacted with customary flair on Tuesday, saying that the large banks located in New York City "should consider the benefits of moving their headquarters elsewhere," since "shareholders should not be forced to pay for continuous lawsuits because these banks are in New York."

Bove said that "for the past decade the state has made war on the industry," and that "what makes this suit unique is that Mr. Schneiderman is suing the bank for something it did not even do and he may be looking to gain $22 billion."
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