JPMorgan, BofA sued over mortgage debt losses

Fri Sep 30, 2011 4:34pm EDT

A flag hangs on the wall of the JP Morgan company stall on the floor of the New York Stock Exchange in New York July 15, 2010.REUTERS/Lucas Jackson

A flag hangs on the wall of the JP Morgan company stall on the floor of the New York Stock Exchange in New York July 15, 2010.

Credit: Reuters/Lucas Jackson

(Reuters) - JPMorgan Chase & Co and Bank of America Corp were hit with new lawsuits by investors claiming losses on $4.5 billion of soured mortgage debt, adding to litigation targeting the two largest U.S. banks.

The plaintiff Sealink Funding Ltd said it lost money after buying nearly $2.4 billion of residential mortgage-backed securities (RMBS) from JPMorgan and $1.6 billion from Bank of America from 2005 to 2007, relying on offering materials that were misleading about the quality of the underlying loans.

According to court papers, Sealink is an Irish entity that oversees risky RMBS that contributed to the near collapse of Germany's Landesbank Sachsen AG.

Another plaintiff, Germany's Landesbank Baden-Wurttemberg, raised similar claims in a separate lawsuit against JPMorgan over $500 million of RMBS that it said it bought.

The lawsuits accuse the banks of packaging large amounts of high-risk mortgages by such issuers as Countrywide Financial now owned by Bank of America, and Bear Stearns and Washington Mutual, now owned by JPMorgan, in pursuit of higher profit.

"This misconduct has resulted in astounding rates of default on the loans underlying the defendants' RMBS and massive downgrades of the (investors') certificates, the vast majority of which are now considered 'junk,'" the lawsuits said.

The investors are seeking compensatory and punitive damages in the lawsuits, all filed Thursday in the New York State Supreme Court in Manhattan.

Bank of America spokesman Lawrence Grayson said the bank will defend against its lawsuit by Sealink, which "appears to be another sophisticated investor looking for someone to blame" for losses caused by a downturn in the economy.

JPMorgan spokeswoman Jennifer Zuccarelli declined to comment. Bernstein Litowitz Bernstein & Grossmann, which represents Sealink and Landesbank Baden-Wurttemberg, did not respond to a request for comment.

In a separate lawsuit filed on Thursday in the same court, Britain's Barclays Plc was sued by Germany's HSH Nordbank AG, which said it lost $40 million after being misled into buying risky RMBS.

Barclays spokeswoman Kristin Friel declined to comment.

Banks face many lawsuits by mortgage securities investors seeking to hold them responsible for losses on debt that once seemed safe but turned toxic once the housing and credit crises began more than four years ago.

Bank of America is seeking court approval of an $8.5 billion global settlement covering investors in mortgage pools with $174 billion of unpaid Countrywide principal balances.

That bank and JPMorgan are also among lenders negotiating with regulators including all 50 state attorneys general on a multibillion-dollar accord addressing foreclosure abuses.

The cases are all in the New York State Supreme Court, New York County. They are HSH Nordbank AG et al v. Barclays Bank Plc et al, No. 652678/2011; Sealink Funding Ltd v. Countrywide Financial Corp et al, No. 652679/2011; Landesbank Baden-Wurrtemberg et al v. Bear Stearns & Co et al, No. 652680/2011; and Sealink Funding Ltd v. Bear Stearns & Co et al, No. 652681/2011.

(Reporting by Jonathan Stempel in New York, editing by Gerald E. McCormick, Matthew Lewis, Gary Hill)

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Comments (7)
Ashishnfl wrote:
JP and Bofa too big to sue, They are out of bailout money. Bofa already decided to reach public pockets again by $5.00 for debit card.
Good Irish banks to recoup your losses, May be US pension funds should also join these honest folk in suing these bankers to recoup their losses.

Sep 30, 2011 10:38am EDT  --  Report as abuse
JamVee wrote:
Does it seem strange to you, that these bank executives, who are paid Gazillion$, with all their Ivy League degrees, couldn’t see the danger of Mortgage Backed Securities.

My own Broker advised me to dump two mutual funds, I owned, that were composed of this junk, a full year before it all fell apart. His reason “The more I look into MBS’s, the less I understand about how they work”.

Sep 30, 2011 10:54am EDT  --  Report as abuse
ScreenName654 wrote:
Dimon will probably be awarded a 10,000% raise for this fine work he does

Sep 30, 2011 11:13am EDT  --  Report as abuse
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