JPMorgan in talks with SEC to resolve probe

WILMINGTON, Del./CHARLOTTE, North Carolina (Reuters) - JPMorgan Chase & Co said it is in advanced talks with the U.S. Securities and Exchange Commission to resolve a probe into its role in selling collateralized debt obligations.

The disclosure, in a regulatory filing, comes a day after court documents revealed the SEC had subpoenaed Credit Suisse for documents related to home loan securitizations.

The SEC also subpoenaed JPMorgan this week for records related to mortgage securitizations, according to Bloomberg.

The settlement talks concern an SEC probe involving JPMorgan's dealings with hedge fund Magnetar over the creation of CDOs, according to a source familiar with the situation.

The probe is a rare misstep for JPMorgan, the second-largest U.S. bank by assets, and its chief executive, Jamie Dimon, who have avoided much of the mortgage controversy that has dogged competitors such as Goldman Sachs Group Inc, Bank of America Corp and Wells Fargo & Co since the housing bubble burst in 2007.

The latest subpoenas could indicate a further expansion of the SEC probe into U.S. lenders' mortgage-related dealings.

"The SEC is taking a more active role in following up on things that are happening in private litigation," said Thomas Gorman, a partner at the law firm Dorsey & Whitney LLP.

Gorman said securities regulators' subpoenas may not be part of a new investigation but an expansion of an on-going probe.

JPMorgan previously said it had received "a number of subpoenas and informal requests" from federal and state authorities over CDOs and mortgage-backed securities.

CDOs and mortgage-backed securities were at the heart of the 2008 financial crisis. Wall Street banks vacuumed up home loans, often subprime mortgages, and repackaged them into bonds and other securities that were sold with top-notch credit ratings.

When the U.S. housing market crashed, the securities plummeted in value, generating enormous losses for investors around the world.

Recent government reports and lawsuits have accused traders and bank executives of knowingly packaging dodgy loans into bonds and other securities, at times even betting against the bonds as they touted them to clients.

On April 14 the U.S. House of Representatives Subcommittee on Investigations released a scathing report accusing Goldman Sachs of misleading clients and manipulating markets.

BOND INSURER SUITS

MBIA Inc and other bond insurers have been fighting back. They have sued the banks for billions of dollars and say they were fraudulently induced into insuring the mortgage bonds.

MBIA, in a document filed in New York state court on Thursday, revealed that the SEC had subpoenaed Credit Suisse this week. A spokesman for the bond insurer said the company's legal counsel also received an SEC subpoena.

MBIA's court filing accuses Credit Suisse of knowingly packaging bad loans into bonds. Rather than forcing the mortgage lender that originated the dud loans to repurchase them, Credit Suisse is accused of getting damage payments which it then kept and did not pass along to investors.

A spokesman for Credit Suisse did not comment directly on the subpoena but said, "MBIA is entitled to what its contract with Credit Suisse provides, and not more."

Similar accusations were made earlier this year against EMC, a mortgage business JPMorgan acquired along with its firesale buy of Bear Stearns. The accusations came in a lawsuit brought by Ambac Assurance Corp, a bond insurer.

MBIA and Ambac are both represented by the law firm Patterson Belknap Webb & Tyler.

In its disclosure filing on Friday, JPMorgan estimated its maximum possible losses from legal proceedings, in excess of established reserves, at $4.5 billion as of March 31, unchanged from its estimate as of December 31.

Wells Fargo, the nation's largest mortgage lender, said its worst-case litigation costs were rising due to foreclosure-related matters. It said its maximum possible loss from legal proceedings rose $500 million to $1.7 billion in the first quarter because of its exposure to foreclosure-related legal issues.

(Writing by Tom Hals and Joe Rauch in Charlotte, North Carolina; Editing by Tim Dobbyn and John Wallace)

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