2012-05-13teribuhl.com

Fallout from JP Morgan trading losses, which led to rater Fitch downgrading their debt yesterday, aren't the only financial worries the banking behemoth is facing. Nestled in that shocking 10-Q filed Thursday is an admission that their regulator, the Securities and Exchange Commission, thinks some of the details that lead to the explosive Ambac mortgage security fraud suit against the naughty stepchild of JPM, Bear Stearns/EMC, are worthy of an enforcement action.

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How many billions in damages JP Morgan will have to pay out is not yet determined but inside their Mortgage-Backed Securities and Repurchase Litigation note on the 10-Q the bank tells us "There are currently pending and tolled investor and monoline claims involving approximately $120 billion of such securities."

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... the most telling sign JPM will have to payout big time is that HUGE jump in litigation reserves they snuck in this week. In the bank's first quarter earnings press release, filed on April 13th, JPM told investors they were adding $2.5bn to existing litigation reserves for mortgage-related suits. And then three weeks later while all my jurno peers are focused on writing stories about what JPM's trading screw up means to their reputation, their master public relations spin machine figures lets thrown in all the bad news we can cause we know the market will punish our stock. So they added on another $1.7bn in litigation reserves for a total hit to income of $4.2bn. That's more than 4 times the net amount ($800 million) they claim they lost on their bad corporate bond trade.


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