Investor to object to proposed $4.5 billion JPMorgan settlement

By Reuters

Oct 30, 2014 02:44 AM EDT

A group of funds that threw a monkey wrench in Bank of America Corp's (BAC.N) proposed $8.5 billion settlement with investors in mortgage-backed securities will object to JPMorgan Chase & Co's $4.5 billion offer to settle claims over similar investments, according to the lawyer that represents them.

The funds, collateralized debt obligations known as the Triaxx entities, received court permission on Wednesday to intervene in a proceeding seeking judicial approval of the JPMorgan settlement, people close to the case said.

JPMorgan last year reached the $4.5 billion agreement with some 20 institutional investors in 330 residential mortgage-backed securities trusts issued by JPMorgan and Bear Stearns, which the bank took over during the financial crisis.  

The settlement would resolve claims over misrepresentations in the quality of mortgages packaged into securities before the collapse of the U.S. housing market.

The Triaxx entities hold certificates with an original balance of some $1.5 billion in 13 of the covered trusts, according to court papers.

Their claims are "potentially worth far more than the small percentage of the $4.5 billion settlement than they would receive," John Moon, an attorney for Triaxx, argued in the papers, filed in New York state court in Manhattan, seeking permission to intervene.

Moon later told Reuters he planned to object to the deal.

Triaxx is the second investor to raise questions about the accord. On Oct. 21, the Federal Home Loan Bank of Boston, which has holdings in 37 of the trusts in the proposed settlement, asked for a three-month extension of the Nov. 3 deadline to object.

On Wednesday, Justice Marcy Friedman of New York state Supreme Court also allowed the bank to intervene, but did not change the deadline, people close to the case said. Friedman's chambers declined to comment.

In August, trustees overseeing the securities accepted the bank's offer for the vast majority of the trusts.

Some 20 investors agreed to the deal last year, including BlackRock Inc (BLK.N), Metlife Inc (MET.N), Allianz SE's Pacific Investment Management Company (ALVG.DE), and Bayerische Landesbank [BAYLN.UL].

Kathy Patrick, a lawyer for the investor group, did not immediately return a call for comment.

In June 2011, Bank of America reached a similar deal with an investor group in which the bank agreed to pay $8.5 billion to resolve claims involving securities issued by Countrywide Financial Corp, which Bank of America acquired in 2008.

A New York judge largely approved the Bank of America deal in January, although she refused to accept a portion objected to by Triaxx, involving loan modifications.

Triaxx has since dropped its opposition, as did American International Group Inc, which led objectors to the settlement in a three-year legal battle.

An appeals court is still weighing the settlement on behalf of other objectors. Oral arguments were held last week.

The case is In re: the application of U.S. Bank National Association, et al, New York State Supreme Court (Manhattan), No. 652382/2014.

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