JPMorgan Settles FHFA’s $33 Billion RMBS Suit

On October 25, the FHFA announced that JPMorgan had agreed to pay it $5.1 billion to settle a number of RMBS-related claims asserted by the FHFA, including in a lawsuit relating to Fannie Mae’s and Freddie Mac’s alleged purchase of $33 billion of RMBS.  Under the settlement agreement, JPMorgan will pay a total of $2.74 billion to Freddie Mac and $1.26 billion to Fannie Mae to resolve the claims asserted in the lawsuit that JPMorgan made misrepresentations in the offering documents for the RMBS it sold to those mortgage companies.  JPMorgan also will pay $670 million to Fannie Mae and $480 million to Freddie Mac to resolve separate claims related to single-family mortgages purchased by those entities.  The FHFA alleged that JPMorgan breached representations and warranties in the contracts concerning those loan sales.  Settlement Agreement and attachments.

Prospectuses: ESMA Questions and Answers Version 20

On October 28, ESMA published version 20 of its “Prospectuses: Questions and Answers.”  Three new questions have been incorporated, addressing the following areas:

  • Statement of auditors’ agreement where a prospectus includes a profit estimate (question 88);
  • Application of proportionate disclosure regime to a rights issue that is not fully subscribed (question 89); and
  • Proportionate disclosure regime for rights issues and admission to trading (question 90).

The existing questions relating to pro forma financial information (question 51) and level of disclosure concerning price information for share offerings (question 58) have been updated.

Note that as the revised responses to these questions include changes to current market practices, they are subject to a 3 month phase-in period and will not take effect until January 28, 2014.  Prospectuses: Questions and Answers.

EBA Publishes First Risk Dashboard of EU Banking Sector

On October 29, the European Banking Authority (EBA) published its first risk dashboard, summarizing the main risks and vulnerabilities in the EU banking sector.

It is based on data from the second quarter of 2013 and takes into consideration the evolution of a set of key risk indicators from 56 EU banks that the EBA has been collecting, on a quarterly basis, since 2009.

The accompanying press release states that after the past two years of repair, the overall conditions of EU banks have improved.  In particular, data in the EBA dashboard illustrates that capital positions have been significantly strengthened and that funding conditions have recovered.  Risk DashboardPress Release.

The Fed Approves New Fee Schedules

On October 31, the Fed announced new fee schedules, effective January 2, 2014, for payment services the Federal Reserve Banks provide to depository institutions (priced services).  The effective fees for the Reserve Banks’ Check 21 services are expected to decline 2%.  The effective fees for the Reserve Banks’ FedACH® service will decline marginally.  The effective fees will increase about 8% for Fedwire® Funds and National Settlement Services and decrease about 1% for Fedwire® Securities Service.  The Board also approved a modest increase to FedLine® access fees.  Fee schedules for all priced services will be available on the Federal Reserve Banks’ financial services website.   Notice.   Proposed Rule.

FCA Issues Consultation Paper on Crowdfunding in the UK

The Financial Conduct Authority issued a consultation paper on the regulation of crowdfunding activities in the UK, in advance of assuming the responsibility for regulating consumer credit in the UK (previously the remit of the Office of Fair Trading).

The FCA’s aim in issuing the consultation paper is to make the market more accessible to retail clients to help foster competition and to facilitate access to alternative investment options.  The FCA is keen on ensuring that only investors who understand and can bear the risks of crowdfunding participate in it.

To achieve its aims, the FCA is proposing to restrict direct offer financial promotion of unlisted shares or debt securities by firms to one or more particular types of client (broadly speaking, high net worth, sophisticated investors or those who have taken advice or will limit the percentage of their portfolio invested through crowdfunding).

Following consideration of comments, a Policy Statement is due to be issued by March 2014.  Consultation Paper.

European Parliament Adopts Committee on Organized Crime, Corruption and Money Laundering Final Report

In a press release dated October 23, the European Parliament announced its adoption of the final report of the special committee (CRIM). The European Commission also published a press release welcoming the report.

In addition, the European Parliament published a provisional edition of the text of the adopted resolution (page 333).  The resolution sets out an EU action plan for organized crime, corruption and money laundering in 2014-9.  European Parliament Press ReleaseEuropean Commission Press ReleaseText.

European Central Bank to Undertake Comprehensive Assessment of Large Banks in Advance of the Single Supervisory Mechanism

In a press release dated October 23, the ECB announced that it will undertake a comprehensive assessment of large banks prior to assuming full responsibility for supervision as part of the SSM.

The assessment will include a risk assessment, an asset quality review and a stress test to examine the banks’ balance sheet’s resilience.  The assessment will start in November 2013 and will be completed in 12 months, in collaboration with the relevant national competent authorities. 

The UK Prime Minister stated that the UK will not participate in the SSM.  Press Release.

Deutsche Bank Settles Nevada AG’s RMBS Probe for $11.5 Million

On October 17, the Nevada Attorney General filed court documents disclosing a $11.5 million settlement with DB Structured Products, Inc., a unit of Deutsche Bank AG.  The Nevada AG had investigated DB Structured Products’ practices related to the packaging and sale of subprime and adjustable rate mortgages in RMBS.  According to the Nevada AG, the settlement proceeds will go to Nevada homeowners.  Assurance of Discontinuance.

Morgan Stanley Wins Dismissal of Dexia’s Fraud Suit Over $626 Million in RMBS

On October 16, Justice Eileen Bransten of the Supreme Court for the State of New York dismissed a suit by FSA Asset Management LLC (FSAM) and Dexia SA/NV (with two related entities, Dexia) alleging fraud by Morgan Stanley in connection with the sale of $626 million in RMBS.  FSAM originally purchased the RMBS from Morgan Stanley in 2006 and 2007, but in 2009, assigned the securities to Dexia in a put option transaction.  Plaintiffs alleged that Morgan Stanley misrepresented the underwriting standards and collateral attributes of the mortgage loans underlying the securities and brought claims for fraud, aiding and abetting fraud and fraudulent inducement.  Justice Bransten held that Dexia lacked standing to bring the claims because the put option transaction assigned only ownership and contractual rights in respect of the RMBS, not claims sounding in tort.  The court further held that FSAM had not suffered damages because it had received full face value for the securities from Dexia.  Decision.