Compliance January 12, 2015

J.P. Morgan Settles Lawsuit for $500M

J.P. Morgan has agreed to pay approximately $500 million to settle a class-action lawsuit over poor-quality mortgage-backed securities.
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Lawyers for the plaintiffs in a class-action lawsuit involving J.P. Morgan Chase & Co. stated, “the parties have reached an agreement in principle,” the Wall Street Journal reports. J.P. Morgan has agreed to pay approximately $500 million to settle the lawsuit over nearly $18 billion worth of poor-quality mortgage-backed securities sold by Bear Stearns Cos.

Investors alleged that Bear Stearns “misrepresented the quality of the loans in the loan pools” and garnered credit ratings for the loans from ratings agencies that were “unjustifiably high,” according to a complaint filed with the court. The complaint also included the pension funds’ claim that the documents associated with the certificates had false statements regarding the underwriting standards used to originate the loans.

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The plaintiffs, led by the New Jersey Carpenters Health Fund and the Public Employees’ Retirement System of Mississippi, said they purchased certificates that were “far riskier than represented, not of the ‘best quality’ and not equivalent to other investments with the same credit ratings.” The plaintiffs further stated that most of the certificates were downgraded to below investment-grade level and their value sank.

The complaint advanced strict liability and negligence claims, not claiming fraud on behalf of Bear Stearns. The letter of agreement to resolve the lawsuit was filed in U.S. District Court in Manhattan on Thursday, January 8, according to the Wall Street Journal. It is one of several lawsuits involving J.P Morgan, which has paid more than $20 billion to government and private investors to settle mortgage-related claims over the past two years. Many of the claims originate from acquisitions it made during the financial crisis, including the 2008 purchase of Bear Stearns and the banking assets of Washington Mutual.

The news report says J.P. Morgan’s chairman and chief executive, James Dimon, confessed in October 2013 that he had not fully anticipated how much the bank would have to pay to defend itself against matters passed down from Bear Stearns and also believed the bank would be insulated from problems involving Washington Mutual. He went on to say, “But that doesn’t mean people can’t come after you, so that’s a lesson learned.”

Deals and People January 12, 2015

Standish Enhances LDI Solutions Team

Standish Mellon Asset Management Company, a BNY Mellon investment boutique focused on fixed income, hired Max Guimond as solutions strategist for its liability-driven investing group.
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Standish Mellon Asset Management Company, a BNY Mellon investment boutique offering investment management services across fixed-income asset classes, named Max Guimond to the newly created position of liability-driven investing (LDI) solutions strategist. 

Guimond is tasked with managing overlays, augmenting Standish’s cash bond capabilities. He will oversee the implementation of completion strategies that utilize cash and derivatives to hedge the inherent risks in defined benefit pension plans.

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“As plan sponsors continue their efforts to minimize the effects of market volatility on the funded status of their plans, they increasingly rely on hedging managers specializing in LDI solutions that go beyond traditional fixed-income investments,” says Andrew Catalan, managing director and senior portfolio manager at Standish. “With Max joining our team, Standish increases the flexibility it can bring to managing risk across a wide array of asset classes.” 

Standish manages approximately $15.4 billion in LDI strategies, which have become an increasingly important tool for defined benefit pension plans seeking to reduce funded status volatility. Guimond, based in Standish’s Boston headquarters, notes that successfully implementing LDI strategies requires consideration of the total plan portfolio, including return-seeking assets such as equities. He is joining the company having previously served at Legal & General Investment Management America as a solutions strategist, structuring LDI solutions and managing LDI portfolios. He holds a bachelor’s degree from Dartmouth College.

More information can be found at www.bnymellon.com.

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