JPMorgan's MBIA Lawsuit Dismissed - Analyst Blog

As per a report in Bloomberg, a lawsuit against JPMorgan Chase & Co. JPM related to its faulty mortgage lending practices was recently turned down by Justice Alan Scheinkman of New York Supreme Court, White Plains. The ruling puts an end to the long drawn litigation between the banking behemoth and MBIA Inc. MBI, the U.S.-based bond insurer. However, the insurer may re-file the case after making relevant modifications.

The litigation originates from a pool of risky mortgage loans worth $1.16 billion. Bear Stearns, the securities trading and brokerage firm, which was later acquired by JPMorgan, served as the underwriter for the same.

It was alleged that the mortgage reports generated by Bear Stearns misled MBIA about the quality of the loans thereby inducing it to insure them. These risky loans defaulted resulting in huge loses for the investors and consequently for the insurers.

Nevertheless, the plea was dismissed by the judge as MBIA was unable to prove that the decision to insure the mortgage loans was based on manipulated reports presented by the underwriter.

Apart from JPMorgan, another Wall Street baron that was sued by MBIA was Bank of America Corp. BAC. The case against BofA was upheld in the Supreme Court of New York and the settlement was reached in 2013.

Mortgage related litigations continue to haunt major global banks including JPMorgan, Morgan Stanley MS, Citigroup Inc. C, BofA, Wells Fargo & Company WFC. Though JPMorgan disburdened most of it in the prior year, it still faces some more legal complications. With the overall industry headwinds pressurizing the top line, any further increase in legal expenses is bound to prove detrimental for the company's performance.

JPMorgan currently holds a Zacks Rank #4 (Sell).