October 23, 2013
Dick Bove, bank analyst at Rafferty Capital Markets (RCM), warns banking institutions such as Wells Fargo, Bank of America (BoA), Wachovia and PNC Financial should be concerned about the Department of Justice (DoJ) suing JP Morgan & Chase Co (JPM) over mortgage-backed securities.
Bove says that “the question that investors must ask is: ‘Will the government apply this set of precedents to JPMorgan Chase alone or will it now seek to extort funds from other banks involved in assisted mergers.’”
Since “all of these banks are guilty of the same things as JPMorgan. Forget JPMorgan, the government is going to go after every major bank with the potential civil lawsuits for tens of billions of dollars.”
The prediction is that “the supposed settlement between JPMorgan Chase and the government affects stockholders, job holders, and the growth of the economy. This could be just the beginning of the government’s activities not the end.”
In the end, Bove asserts that the “potential fallout” of forcing “banks to admit guilt” could be “used by trail lawyers as evidence that the firm defrauded investors, and cost the big banks many more billions of dollars in both litigation costs and settlements.”
Bove said: “If the banks in question are required to admit guilt, it will start a literal bloodbath of civil suits that will tie up the nation’s banking system so that it will be unable to lend money to assist the growth of the U.S. economy.”
Last September, Jamie Dimon and Attorney General Eric Holder at the headquarters of the DoJ to discuss settlement options after the DoJ threatened legal proceedings over JPM’s involvement in the mortgage-backed securities (MBS) fraud.
Talks between Dimon and Holder involved a possible $11 billion to be paid to the government.
Holder personally attended the meeting with Dimon which was described as “civil” by an unnamed source.
This anonymous informant said that “the discussion centered partly on whether the bank could avoid criminal prosecution if it paid the fine and whether it would have to admit guilt. Asked about the negotiations in an unrelated news conference, Holder acknowledged the meeting but snapped at a reporter who suggested that “prison time” was not part of the talks. ‘You weren’t in the room when I said I was talking to them,’ Holder said.”
This includes no jail time for JPM executives while only paying a small fraction of the financial windfall JPM and others caused when the housing bubble was created and burst in 2008.
Essentially, Holder made an offer of $11 billion to Dimon to pay for the opportunity to “wipe away a host of probes into its mortgage business.”
In effect, this deal with Dimon and Holder is expected to “resolve civil actions brought by a number of enforcement agencies.”
Alan Greenspan, former chairman of the Federal Reserve Bank (FRB), says that it was “fear and euphoria” made the housing bubble “go up” and “contagion [was] the critical phenomenon which causes the thing to fall apart.”
Greenspan claims that the when he was head of the FRB he “didn’t know about” the MBS and derivatives time bomb.
While Greenspan claims the FRB did not know about the MBS because he “was told very liitle of the problems”, Christine Lagarde, managing director of the International Monetary Fund (IMF) recently said that “the Fed must take care in calibrating an exit. If it moves too soon, by cutting its bond purchases before the end of the year, for example, the central bank could stunt growth for years.”
A long term government shutdown in the US could be “quite harmful” to the global economy.