This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

JPMorgan's FHFA Settlement Pleases Analysts

Stocks in this article: JPM

NEW YORK ( TheStreet) -- Investors seem pleased with JPMorgan's FHFA settlement, judging from a slight rise in the bank's share price in early trading Monday, and analysts are pleased as well.

The biggest industry story this earnings season has been the $387 million net loss reported by JPMorgan Chase (JPM), as the company set aside $9.15 billion for litigation reserves during the third quarter. The company also surprised investors by actually reporting it had $23 billion in litigation reserves on its "fortress balance sheet," the term repeatedly used by JPMorgan CEO James Dimon.

JPMorgan is expected to enter settlements with the Justice Department and regulators covering criminal and civil investigations of the company's securitization of mortgage loans, as well as other mortgage-related areas. The total settlement cost to the company could be as high as $13 billion, according to various media reports.

The first part of the big round of settlements was announced Friday, with the Federal Housing Finance Agency (FHFA) -- which regulates Fannie Mae (FNMA) and Freddie Mac (FMCC) -- announcing a $5.1 billion agreement.

The agreement announced on Friday covers losses on purchases of private label mortgage-backed securities packaged by JPMorgan, or Bear Stearns or Washington Mutual, that were sold to Fannie and Freddie. JPMorgan acquired Bear Stearns in March 2008, after the investment bank went through a liquidity crisis that threatened bankruptcy. JPMorgan bought the failed Washington Mutual from the Federal Deposit Insurance Corp., after the nation's largest savings and loan institution was shut down by regulators in September 2008.

Friday's total settlements exceeded the $4 billion that was widely reported in the media over the past week; however, the language of the settlement agreements was favorable for JPMorgan. The FHFA settlement indeed totaled $4 billion, but JPMorgan's main banking subsidiary, JPMorgan Chase Bank, NA, agreed to pay about $670 million to Fannie Mae and $480 million to Freddie Mac.

A key element of the agreement with the FHFA was that JPMorgan admitted no wrongdoing. However, JPMorgan continues to battle the FDIC over how much of Washington Mutual's actions it is liable for.

Analysts reacted favorably, as JPMorgan having avoided the huge risk of an admittance of wrongdoing in the FHFA settlement. Admitting wrongdoing related to the sale of private label MBS to Fannie and Freddie could have opened the floodgates for lawsuits by other institutional investors, since their burden of proof would be made lower, and the could avoid some of the drudgery of analyzing loan-level data to identify misrepresentation by JPM, Bear Stearns or Washington Mutual.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs