In the swirl of lawsuits facing the big banks over mortgage-backed securities, things can change seemingly on a daily basis. A recent example can be found in the sudden settlement between Bank of America (NYSE:BAC) and mortgage insurer MBIA(NYSE:MBI), a squabble that had been brewing for some time, with no apparent end in sight.
Now, a suit AIG (NYSE:AIG) is pursuing against B of A has opened up a can of worms for peer JPMorgan Chase (NYSE:JPM), as the judge in the latter case has cited the former litigation as proof that he had no jurisdiction to throw out claims by Dexia that MBSes it bought from Bear Stearns, Washington Mutual, and, on its own and as purchaser of those two entities, JPMorgan.
Venue change makes all the difference
The change stems from the fact that a New York appeals court is allowing the larger AIG v. Bank of America suit to be heard in state, rather than federal court. In the Dexia case, the judge used the Edge Act, which makes a distinction between domestic and foreign banking activities, to throw out the bulk of Dexia's case against JPMorgan.
But AIG's tenacity in its mission to recoup some of its crisis-era losses has spurred the megainsurer to push its case concerning $10 billion of crummy MBSes against B of A, despite a supposed vow to the latter by the New York Fed that the bank would not be responsible for such claims.
The decision to move the AIG case to a state rather than a federal venue was a big win for the insurer, and a blow to B of A. Now this complaint is proving to be a problem for JPMorgan, too.
Just the beginning?
Though the Dexia v. JPMorgan lititgation involves a small number of disputed securities -- 65 in all -- with a relatively small overall value of $774 million, this case is obviously important. At the time of the original ruling, the decision was hailed as a boon to big banks, which would now be considered immune from similar lawsuits.
JPMorgan apparently saw the suit as significant, as well, or it would not have put such time and effort into fighting it; given its small size, it surely would have been much cheaper to settle. Unfortunately for the big banks, this litigation news looks like the well-worn road of toxic MBS lawsuits just got a lot longer.