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JPMorgan Reaches Billion-Dollar Settlement With Investment Banking Firm

paying-money [1]JPMorgan Chase [2] has agreed to pay $1.42 billion to Lehman Brothers Holdings to settle claims that JPMorgan drained Lehman of billions of dollars before the investment banking firm’s infamous collapse in 2008, according to JPMorgan’s 8-K filing [3] with the Securities and Exchange Commission (SEC [4]) on Tuesday.

According to the filing, Lehman had been seeking the return of $7.9 billion in collateral and billions in “consequential damages based on bankruptcy and common law causes of action.” Lehman was also trying to recover approximately $2.4 billion related to claims by the investment banking firm out of JPMorgan’s closeout of thousands of derivatives transactions outstanding between the two firms after Lehman had filed for bankruptcy in September 2008.

A spokesman for JPMorgan Chase declined to comment beyond what was contained in the 8-K filing with the SEC.

The lawsuit was originally filed by Lehman in 2010, claiming that JPMorgan had created an $8.6 billion “slush fund” in 2008 just before the investment bank filed for bankruptcy, which Lehman termed “voracious,” according to a report from the Wall Street Journal [5]. Lehman had put up billions of dollars in collateral for the derivative transactions as well as overnight loans that JPMorgan arranged. JPMorgan was providing daily cash advances, some worth as much as $100 billion, to Lehman in order to facilitate overnight repurchase agreements, which was the main source of contention following the investment bank’s failure. JPMorgan later countersued Lehman.

The settlement between JPMorgan Chase and Lehman is pending approval from the U.S. Bankruptcy Court in New York.

In a separate 8-K filing with the SEC [6], JPMorgan Chase announced that it had agreed to pay $995 million to Ambac Assurance Corporation over the sale of 11 residential mortgage-backed securities sponsored by EMC Mortgage, an indirect subsidiary of JPMorgan Chase. Ambac had been seeking recovery of past and future principal and interest payments on $3.3 billion of certain insured classes of those 11 RMBS.

“This settlement also provides for the withdrawal of Ambac’s objection to the Firm’s $4.5 billion settlement with trustees of 319 RMBS trusts issued by J.P. Morgan, Chase and Bear Stearns for which the trustees are currently seeking court approval,” the filing stated.

JPMorgan stated in the respecctive 8-K filings that the settlements will not have a material effect on the firm’s earnings for Q1 2016.