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Financial News: JPMorgan Embroiled in Lawsuit Over Fraud

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Plus, why QE3 is making bank for banks.

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This column highlights the most interesting and useful financial news from around the Web.

Wall Street Journal
Link: J.P. Morgan Sued on Mortgage Bonds
"New York's top prosecutor opened a new front in efforts to hold banks accountable for the financial crisis by filing a civil lawsuit against J.P. Morgan Chase & Co. (NYSE:JPM), alleging widespread fraud by the company's Bear Stearns unit in the sale of mortgage-backed securities.

The case is the first to be brought under the aegis of a group of federal and state prosecutors and regulators formed by President Barack Obama in January. If successful, the lawsuit could point the way to significantly more financial pain for the big banks, which face threatened government actions and numerous investor lawsuits tied to mortgage securities that soured in the crisis.

Since 2008, state and federal regulators have launched dozens of probes to determine whether banks broke securities laws or were simply guilty of errors of judgment. Regulators have achieved some record-breaking penalties and investors have secured some significant victories. Bank of America Corp. (NYSE:BAC) agreed Friday to pay $2.43 billion to settle claims it misled investors about the acquisition of Merrill Lynch & Co., in the largest shareholder class-action settlement tied to the meltdown. BofA didn't admit wrongdoing."

Financial Times
Link: Banks Reap Profits on Mortgages After QE3
"Bank profits from new mortgages have soared since the Federal Reserve began its third round of bond purchases two weeks ago, fuelling the debate over the fallout of the latest dose of quantitative easing.

The extent to which QE3 drives down new mortgage rates and helps homeowners or is pocketed by banks will be crucial to the success of the policy and the prospects for growth in the US and global economies next year."

"Bill O'Donnell, strategist at RBS Securities, said that MBS issuance had averaged less than $1.5 billion per week since the launch of the Fed's third round of quantitative easing, much less than the central bank is buying, meaning the Fed is having to appeal to existing holders, many of whom have bought in the last two weeks.

'Investors are parking their brains and joining the party, buying up MBS knowing that there will be a willing buyer to take them out at uneconomic levels,' he said."

Deal Journal
Link: BofA-Merrill: Still A Bottom-Line Success
"In 2008, Bank of America CEO Ken Lewis and Merrill Lynch CEO John Thain toasted their pending deal with champagne. Today, with both far from the scene, Bank of America paid up the largest post-crisis securities class action settlement over their handiwork.

But while Bank of America's purchase of mortgage giant Countrywide has been widely concluded to be plain awful, Merrill Lynch is another story.

If all that matters is profits and losses, Merrill is a resounding success. It has made nearly six times the amount Bank of America has earned as a total entity since 2009.

Bank of America paid $19 billion in the all-stock deal when it closed and weeks later unveiled $15.31 billion in losses. Add in today's settlement and the cost wasn't cheap, to be sure, but the bank's bottom line has undoubtedly been boosted."

DealBook
Link: Barclays Continues to Remake Executive Team
"Barclays (NYSE:ADR) announced on Tuesday that it had added two new members to its executive committee as it continued to reshape itself in the wake of a rate-rigging scandal.

Valerie Soranno Keating, head of the Barclaycard division, and Ashok Vaswani, who will lead the bank's global retail and business banking operations, will join the executive committee immediately, according to a statement from Barclays.

The announcement comes a little over a month after Antony P. Jenkins was appointed as chief executive. David Walker will take over as chairman of Barclays in November."

Businessweek
Link: How I Got Here: Merrill Lynch's Buck Wiley
"In college I studied European history. I was obsessed. I didn't take anything about business. When I started in business school, one of my best memories was taking accounting, because it was like learning a foreign language. I compared it to learning French. It was hard but it made intuitive sense. I can't say I loved accounting but it was fascinating, and those courses led me in the direction I ultimately took."

"While at the University of Brussels, I studied a lot of tax law and really dug into European currencies. I knew I wanted to stay in Europe so I began interviewing, and ended with a job offer with KPMG in their Moscow office. It was a typical first year in an accounting firm that was very regimented. My department was run by a Texan, and our clients ranged from oil companies looking to enter the Soviet Union, to Australians, Germans, and the British. It was truly an international mix and I loved all the excitement."
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