October 29, 2013 / 1:31 PM / 4 years ago

Fitch: JPM Settlement Sets High Bar for Future FHFA Deals

(The following statement was released by the rating agency) CHICAGO, October 29 (Fitch) JP Morgan Chase's (JPM) $4 billion settlement with the Federal Housing Finance Agency (FHFA) sets a relatively high bar for other banks seeking to reach similar agreements, according to Fitch. Settlements by the larger institutions named in the complaint may pave the way for more deals. However, we also believe that other banks involved in the FHFA litigation may need to increase the size of their litigation reserves to reflect the comparative amounts of recent settlements. JPM's settlement represents close to 12% of the approximately $33 billion original face value of the private-label, mortgage-backed securities (PLS) cited in the FHFA complaint. These include securities issued by JPM, Bear Stearns and Washington Mutual. The relative size of the settlement is only slightly lower than UBS's $885 million payment earlier this year, which represented roughly 14% of the original face value. In our view, these amounts are substantial, particularly given the level of to-date losses on the underlying PLS. This reflects the more aggressive stance taken by the federal government in resolving litigation against the banks involving precrisis matters. Fitch believes that Bank of America (BofA) has the largest potential exposure out of the 17 banks cited in FHFA's lawsuits. Including securities issued by Countrywide and Merrill Lynch, the bank has approximately $57 billion in original face value of PLS cited by FHFA. It is challenging to estimate the exposure for any individual institution, and BofA's other mortgage-related negotiations and settlements may also influence the outcome of this litigation. However, using the JPM and UBS settlements as a proxy, Fitch estimates BofA's figure could range between $5 billion and $8 billion, should the bank decide to settle. We do not believe a settlement of this size would affect BofA's current ratings. Most institutions do not provide detailed information on the size of litigation reserves, making it difficult to project future reserve increases. JPM has recently disclosed $23 billion of litigation reserves as of Sept. 30, 2013, including a $9.3 billion provision added in third-quarter 2013. Proceeds from the settlements are paid directly to Fannie Mae and Freddie Mac, which pay out most of their net income to the Treasury in the form of a dividend. For additional thoughts on the potential size of future settlements, see the special report, "Global Banks: FHFA Lawsuit Settlements," dated Aug. 14, 2013, at www.fitchratings.com. Contact: Ilya Ivashkov, CFA Director Financial Institutions +1 212 908-0769 Bill Warlick Senior Director Fitch Wire +1 312 368-3141 Fitch, Inc. 70 W. Madison Chicago, IL 60602 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com; Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: Global Banks: FHFA Lawsuit Settlements here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below