(JPM) JPMorgan Chase and HSBC Holdings Dragged to Court

On Tuesday, DZ Bank AG (DZBK), Germany’s largest co-operative lender, filed a lawsuit against JPMorgan Chase & Co. (JPM) and HSBC Holdings Plc (HBC) for breaching representations and warranties. The complaint lodged claims that both companies have misrepresented documents related to the sale of over $85 million and $122 million, respectively, in residential mortgage-backed securities.

DZ Bank alleged that JPMorgan and HSBC issued misleading statements with omissions related to the mortgage-backed securities and has concealed risks associated with these securities. The company claims that the documents used for offering the securities contained untrue statements or omissions about how risky the investments might be. Misinterpretation of these risks provoked investments, which have virtually no value at current levels.

DZ Bank has filed lawsuit in the New York State Supreme Court in Manhattan. The company demands for the damages.

JPMorgan has been entangled in a number of lawsuits since last year. Earlier in January, the US Bank NA, a unit of U.S. Bancorp (USB), also filed a lawsuit against JPMorgan for misrepresenting documents related to the sale of over $95 million in mortgage-backed securities marketed in 2005 by the former Bear Stearns Cos. Bear Stearns was acquired by JPMorgan back in 2008.

Moreover in December 2011,JPMorgan along with Ally Financial Inc. was sued by HSH Nordbank AG, a German lender for the similar issue in the sale of $293 million in mortgage bonds.

Among other banks, Citigroup Inc. (C), The Goldman Sachs Group Inc. (GS) and M&T Bank Corp. (MTB) have also been legally accused for misrepresenting documents related to mortgage-backed securities and other losses in 2011.

We expect the continuous surge in the number of lawsuits to dent banks’ reputation and hurt their financial results.

Shares of JPMorgan currently retain a Zacks #3 Rank, which translates into a short-term Hold rating, while HSBC currently retain a Zacks #4 Rank, which translates into a short-term Sell rating.

CITIGROUP INC (C): Free Stock Analysis Report

GOLDMAN SACHS (GS): Free Stock Analysis Report

HSBC HOLDINGS (HBC): Free Stock Analysis Report

JPMORGAN CHASE (JPM): Free Stock Analysis Report

M&T BANK CORP (MTB): Free Stock Analysis Report

US BANCORP (USB): Free Stock Analysis Report

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