JPMorgan on Friday announced a separate agreement to pay $4.5 billion to a group institutional investors to settle loss claims on residential mortgage-backed securities (RMBS) issued by the JPMorgan, Chase and Bear Stearns between 2005 and 2008.
That agreement didn't cover sales by Washington Mutual, however, Morgan Stanley analyst Betsy Graseck in a note to clients on Monday wrote that her firm was assuming that Washington Mutual's liability for RMBS sales to institutional investors would remain with the FDIC. "If we're wrong, our bear case assumes a $3.3b payout," she wrote.
JPMorgan's third-quarter earnings were wiped out by a $9.15 billion provision for litigation expenses. The company reported having $23 billion in litigation reserves as of Sept. 30, and said in a filing with the Securities and Exchange Commission on Friday that "the firm believes it is appropriately reserved for this and any remaining RMBS litigation matters."
JPMorgan in a statement implied there would be no effect on the company's fourth-quarter earnings. The bank's shares closed up nearly 1% in Tuesday trading, to $56.15.
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-- Written by Antoine Gara in New York and Philip van Doorn in Jupiter, Fla. %MCEPASTEBIN%