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 Corp (NYSE:BAC) and mortgage insurer MBIA Inc. (NYSE:MBI), a squabble that had been brewing for some time, with no apparent end in sight.
Now, a suit American International Group Inc (NYSE:AIG) is pursuing against Bank of America Corp (NYSE:BAC) has opened up a can of worms for peer JPMorgan Chase & Co. (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 Chase & Co. (NYSE:JPM).
Venue change makes all the difference
The change stems from the fact that a New York appeals court is allowing the larger American International Group Inc (NYSE:AIG) v. Bank of America Corp (NYSE:BAC) 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 Bank of America Corp (NYSE:BAC), 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 American International Group Inc (NYSE:AIG) case to a state rather than a federal venue was a big win for the insurer, and a blow to Bank of America Corp (NYSE:BAC). Now this complaint is proving to be a problem for JPMorgan, too.
Just the beginning?
Though the Dexia v. JPMorgan Chase & Co. (NYSE:JPM) 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.
The article Bank of America Case Burns JPMorgan Chase originally appeared on Fool.com and is written by Amanda Alix.
Fool contributor Amanda Alix has no position in any stocks mentioned. The Motley Fool recommends American International Group (NYSE:AIG). The Motley Fool owns shares of American International Group, Bank of America, and JPMorgan Chase and (NYSE:JPM) has the following options: Long Jan 2014 $25 Calls on American International Group.
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