JPMorgan Lucks Out With This Dismissal

GavelOne good piece of news has joined the long train of seemingly unending and concerning updates about JPMorgan Chase (NYSE:JPM). The Senate’s Permanent Subcommittee on Investigations launched examination of the bank’s London Whale trading loss; the Federal Reserve found weaknesses in the capital-management plan the bank submitted to this year’s stress tests; and, the Officer of the Comptroller of the Currency downgraded the bank in a key metric used to determine the strength of financial institutions.

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But the bank did win a dismissal of nearly all of a lawsuit brought by the Belgian-French bank Dexia SA (DXBGF.PK) — which accused JPMorgan of misleading it into buying more than $1.6 million world of troubled mortgage debt. The ruling — made Wednesday by U.S. District Judge Jed Rakoff in Manhattan — is fortunate for JPMorgan and Chief Executive Officer Jamie Dimon as it removed approximately 99 percent of the potential damages.

Emails and other materials that were revealed during hearings indicated that JPMorgan was aware the mortgage-backed securities up for sale were toxic, but the sold them anyway, reported Reuters. These documents brought notoriety to Dexia’s case and made Rakoff’s ruling surprising at first glance. It is also surprising that he dismissed much of the case after deciding in February to reject JPMorgan’s bid to have the case dismissed. The judge said, according to the publication, that he would explain his reasoning “in due course.”

Rakoff dismissed the case with prejudice — which means it cannot be brought again. He showed skepticism during court hearings about whether Dexia had the legal standing to raise the claims and whether some of the alleged misrepresentations even supported its claims, which explains his ruling to some degree…