A Bad-News Week for JPMorgan Chase

For many, last week was one of revelry, new resolutions, and fresh starts. For JPMorgan Chase (NYSE: JPM  ) , however, it was a time span that delivered some unwelcome news in its never-ending parade of legal problems.

As lawyers and judges got back to work later in the week, the bank received three bits of bad news with which to ring in the New Year.

Another lawsuit about crummy mortgage-backed securities
The National Credit Union Administration threw another suit regarding soured MBSes on JPMorgan's pile last Friday, accusing the bank's 2008 acquisition, Washington Mutual, of selling tainted securities to three now-defunct credit unions. The government entity claims, of course, that WaMu knew of the impaired quality of the mortgages tucked inside when the products were sold.

JPMorgan isn't the only one to have been hit with such a claim by the NCUA. Bloomberg notes that fellow big banks Wells Fargo (NYSE: WFC  ) , Goldman Sachs (NYSE: GS  ) , UBS (NYSE: UBS  ) , and Citigroup (NYSE: C  ) , to name a few, have also been targeted, and Citi paid up to settle its own charges in late 2011. But for JPMorgan, this suit just added insult to injury, as it received a very similar suit from the same agency in December, this time naming Bear Stearns as the bad guy.

Treasury insists on those pesky documents regarding Madoff
Apparently, lightning doesn't strike twice when it comes to claims of confidentiality. Even though JPMorgan was victorious over the Federal Energy Regulatory Commission concerning certain emails  the bank claimed were protected by law, a similar assertion isn't washing over at Treasury.

This time, the documents in question relate to the Ponzi scheme masterminded by Bernie Madoff. The government wants to know whether or not the bank was involved in the investment ruse, but JPMorgan has claimed attorney-client privilege. This time, however, regulators have given the bank until this Friday to ante up, or pay the consequences.

As it turns out, JPMorgan doesn't have the power to nix renovations
JPMorgan's energy arm is in plenty of hot water, too. Despite the above-mentioned win in its battle with FERC and the California Independent System Operator, the bank still got itself kicked off the grid  for six months starting April 1 of this year for filing dodgy documentation with the ISO.

Now, the bank has been told that it cannot stop necessary renovations  to a southern California power plant in Huntington Beach. Even though the plants are owned by another company, JPMorgan states that its agreement with the plant's owners allows the bank to stop the work, which the state claims is necessary to prevent brownouts during the summer months. FERC, obviously, disagreed.

One Fool's take
Though the year hasn't started out brilliantly for JPMorgan, none of these issues will cause the bank permanent damage, each and of themselves. Though these three problems represent only a drop in the litigation bucket for the biggest of the banks, they are just a sampling of the time and money the bank spends dealing with different types of legal issues. Putting out fires several times each week is not the best way for a bank to make money, and it looks as if 2013 will bring with it more litigation tied to Bear and WaMu. It's going to be a busy year for JPMorgan, indeed.

Unlike other big banks that are getting hit with megalawsuits on a weekly basis, JPMorgan has the bulk to insulate itself, at least for the short term. Will the big bank still be a good investment deal in 2013? The answer depends on several factors, so to help figure out whether JPMorgan is a buy today, I invite you to read our premium research report on the company today. Click here now for instant access!


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  • Report this Comment On January 07, 2013, at 4:26 PM, garifolle wrote:

    Buy the rumor and sell the news can go in both directions: sell the rumors, and buy the news.

    So many bad news seem to have hust JPM in the past week, when performance was not good relative to other bansk,

    But now that they come out one after the other one, it seems like investors thought"the worst is behind.

    The news are priced in.

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