Chris Whalen, a bank analyst, warns that JPMorgan and the top 5 or 6 banks might have to pay billions to settle class action lawsuits.
He told King World News in an interview (which you can listen to by clicking here) that even though banks have been fighting them, a ton of class action lawsuits against banks have survived past petitions for dismissal, etc. And they could cost JPMorgan, for example, up to 50 cents on the dollar (on the $45 to $50 billion in lawsuits against them, that’s $20 -$25 billion).
“The surviving 33 claims which are straight forward securities fraud claims, much like WorldCom, Enron and that sort of thing, those claims were settled at 50 cents on the dollar. So today of the trillion dollars or so in class action claims that were filed right after the crisis started, there’s about $200 billion left that have survived motions to dismiss and other procedural efforts by the banks to knock this litigation out. JPMorgan has somewhere around $45 to $50 billion worth of current claims that look like they are going to go to trial.”
Usually, lawsuits like this don’t stick around so long, and the claimants have to fight them for themselves. But not this time, says Whalen.
“Now we in the community that watches this stuff had thought that eventually the New York courts were going to shoot down the class action lawsuits, and force all of the claimants to basically litigate on their own. That’s the tendency in America, that’s our federalist system. However, this time around we have bondholders in these classes and I think there is enough commonality in the claims that the court may actually let the class actions proceed, which is much more efficient for the plaintiffs obviously…”
“There’s still some significant claims out there. It’s not certain that the banks will lose, but I will tell you that once a claims like this gets passed preliminaries and they are actually going to trial, the plaintiffs have a good chance of winning.”
Translation: the top 5 or 6 banks, and in particular JPMorgan, might have to pay material settlements.
“This may force the banks to settle. Now, if we settle at 50 cents on the dollar do the maths, that becomes a very material hit not just for JPMorgan, but for all the top five, six banks that have home equity loan exposure that’s been reflected in securities act claims or just primary mortgage backed securities that have fraud claims…”
If Whalen’s prediction plays out, the settlements could crush bank earnings in future quarters. Bank of America just settled a mortgage lawsuit for $8.5 billion and it’s going to cost shareholders as the firm will announce losses of around $9.1 billion this quarter.