(JPM) JPMorgan Chase & Company to Pay Settlement

October 13th, 2009

JPMorgan Chase & Company (JPM) decided to pay $55 million to settle a lawsuit related to the losses of investors with the collapse of American Business Financial Services Inc.

American Business Financial Services filed for bankruptcy in Jan 2005 as its debts (including interest) exceed $1 billion. JPMorgan had by all accounts taken part in reporting pretended gains and assets to create the illusion that American Business Financial Services was profitable. But originally it was losing hundreds of millions of dollars.

Concurrently, other two investment banks, Credit Suisse (CS) and Morgan Stanley (MS), agreed to settle the same lawsuit. Credit Suisse agreed to pay $37.5 million and Morgan Stanley agreed to pay $7.5 million.

The settlement amount of these three banks aggregates $100 million. This is the largest settlement so far in a series of lawsuits by the court-appointed bankruptcy trustee George Miller. In Jun 2009, the former counsel, Blank Rome LLP, settled for $20 million.

JPMorgan is a leading global financial services firm with assets of $2.0 trillion and operations in more than 60 countries. Though results for the last few quarters benefited from a strong performance by the investment bank, Consumer Lending and Card Services deteriorated due to continued high levels of credit costs. We anticipate continued synergies from the company’s diversification and strong capital position, but increasing provisions and worsening credit quality will be a drag on upcoming results.

Zacks Investment Research
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