J.P. Morgan’s Mortgage Deep Troubles

J.P. Morgan bundled 4,209 loans from New Century Financial. (Reuters)

According to The Wall Street Journal, a 1,625-square-foot bungalow at 51 Perthshire Lane in Palm Coast, Fla., is among the thousands of homes at the heart of J.P. Morgan Chase JPM +0.34% & Co.’s $5.1 billion settlement with a federal housing regulator on Friday.

In 2006, J.P. Morgan bought one of two mortgage loans on the home made by subprime lender New Century Financial Corp. J.P. Morgan then bundled the loan with 4,208 others from New Century into a mortgage-backed security it sold to investors including housing-finance giantFreddie Mac. FMCC +7.73%

By the end of 2007, the borrower had stopped paying back the loan, setting off yearslong delinquency and foreclosure proceedings that halted income to the investors, according to BlackBox Logic LLC, a mortgage-data company.

The Palm Coast loan wasn’t the only troubled one in the New Century deal: Within a year, 15% of the borrowers were delinquent—more than 60 days late on a payment, in some stage of foreclosure or in bankruptcy—according to BlackBox. By 2010, that number exceeded 50%.

“That’s much worse than anyone’s expectations when the deal was put together,” said Cory Lambert, an analyst at BlackBox and former mortgage-bond trader. “It’s all pretty bad.”

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How does U.K. Charities Turn to Bond Market?

(iStockPhoto)

According to The Wall Street Journal, Greenwich Leisure Ltd. is offering some of its half a million or so members a quirky way to get a month’s free gym membership every year for the next five years: buy its bonds.

The London-based sports center-to-libraries operator is among a small but growing band of U.K. social enterprises and charities tapping the bond market to raise cash from investors who are seeking more ethical ways to generate returns.

It comes at a time when the U.K. government is cutting funding to local authorities, placing more of a burden on charities and other community organizations to step in and provide services that were previously offered by local councils. For social enterprises such as Greenwich Leisure, bonds are an attractive way to raise large sums of cash quickly when other financing options, such as bank loans, are limited.

“The market is slowly but definitely growing,” said Bryn Jones, a fund manager at Rathbone Brothers PLC, whose ethical bond fund manages about £132 million ($213.4 million).

Mr. Jones said his fund has been buying social housing bonds since 2002, but more recently, there has been a rise in deals from smaller charities too. Disability charity Scope came first in 2012, and this year has seen deals from Mencap, a charity for people with learning disabilities, and Midlands Together, which provides training and mentoring for ex-offenders. Two more deals, including Greenwich Leisure’s, are currently in the market. Mr. Jones says his fund is looking to buy some of the latter’s bonds.

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Why U.S. Cities Grapple With Finances?

Which U.S. cities are lagging behind according to selected 2012 measures of fiscal health. (The Wall Street Journal)

According to The Wall Street Journal, American cities’ fiscal health is lagging behind other sectors of the economy as the recovery slowly takes hold.

Buffeted by steep drops in state aid, rising pension and health-care costs and sluggish property-tax revenue, many urban centers are struggling even several years after the financial crisis.

“We think we saw the bottom, knock on wood,” said Robert Chisel, director of finance and administration for Reno, Nev. But, he said, “We’re not going back to the old days. We all know that.”

Local officials hasten to distinguish their cities from Detroit, which this summer became the largest-ever U.S. municipal bankruptcy case. Most won’t get to that point: just 63 cities, towns and villages, including Detroit, have filed for municipal bankruptcy protection since 1954, said Chicago lawyer James Spiotto, who tracks the sector.

But an analysis by The Wall Street Journal of financial data from the nation’s largest cities shows that many of them are wrestling with the same types of issues that sank Detroit. The data were provided by Merritt Research Services LLC, an Iowa research firm that mines cities’ financial filings. Merritt examined 2012 filings from the 250 largest U.S. cities by population. A handful, including Baltimore, Milwaukee and Dayton, Ohio, weren’t available by August 2013, when Merritt collected the information.

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Housing Regulator Announces J.P. Morgan Pact

JPMorgan (Bloomberg)

According to The Wall Street Journal, J.P. Morgan Chase & Co. on Friday agreed to pay $5.1 billion in settlements with the regulator of mortgage-finance companies Fannie Mae FNMA +13.40% and Freddie Mac.FMCC +11.89%

The pact with the Federal Housing Finance Agency includes $4 billion to settle a lawsuit alleging the bank misled Fannie and Freddie about the quality of securities J.P. Morgan and two other banks it later acquired had sold to the housing-finance giants during the housing boom. The deal also includes $1.1 billion to settle separate demands from Fannie and Freddie that J.P. Morgan buy back loans that the housing-finance companies said had run afoul of their underwriting standards.

“This is a significant step as the government and J.P. Morgan Chase move to address outstanding mortgage-related issues,” said FHFA Acting Director Edward DeMarco. Resolving the outstanding lawsuit “provides greater certainty in the marketplace and is in line with our responsibility for preserving and conserving Fannie Mae’s and Freddie Mac’s assets on behalf of taxpayers.”

The suit is the fourth of 18 filed by the FHFA in 2011 to be settled.

The settlement comes as J.P. Morgan tries to put as many legal woes behind it as possible. In the third quarter, it set aside $9 billion in additional legal reserves, giving it a total of $23 billion to absorb future settlements and lawsuits. In the last month, J.P. Morgan also agreed to pay more than $1 billion to end an array of investigations into a 2012 trading debacle that cost the bank more than $6 billion and which raised questions about governance and oversight.

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Twitter’s IPO May Value It at $11.1 Billion

Source: Bloomberg News

According to The Wall Street Journal, Twitter Inc. on Thursday said it would price its shares at $17 to $20 in an initial public offering, valuing the messaging service at up to $11.1 billion, a number seen as conservative even for a company facing widening losses.

The proposed market value would makeTwitter worth nearly twice as much asGroupon Inc., GRPN +3.11% the daily deals company, but less than one-tenth of social-networking rival Facebook Inc.

As proposed, Twitter’s IPO could raise as much as $1.6 billion for the company, whose service has grown to more than 230 million monthly active users since the first “tweet” was sent in 2006.

Analysts said the company might yet raise the target price. If the offering is well received, it could signal that investors are willing to wager on a big future for social-media companies even in the absence of profits, which Twitter doesn’t have. The deal comes amid the best year for U.S.-listed IPOs since 2007 based on number of deals.

With a price range established, Twitter can now begin to pitch investors who would have access to the starting IPO price. The company is expected to settle on a final price on Nov. 6, according to a marketing document reviewed by The Wall Street Journal. Twitter shares would then begin trading the next day on the New York Stock Exchange NYX -0.12% under the symbol TWTR.

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Goldman Sachs Vice Chairman to Step Down at End of Year

Source: Bloomberg

According to Bloomberg, Goldman Sachs Group Inc. (GS) said J. Michael Evans, a vice chairman who ran emerging markets and was seen as a potential successor to Chief Executive Officer Lloyd C. Blankfein, is retiring after more than 20 years at the bank.

Evans, 56, will step down at the end of the year and become a senior director, the New York-based company said today in a statement.

Evans ran businesses including the securities division, equity trading and equity-capital markets in a career that featured positions in New York, London and Hong Kong. In 2011, he was named to lead the emerging-markets units as part of Blankfein’s push to be “Goldman Sachs in more places.”

“Michael’s deep commitment to the firm, his unrelenting focus on our clients and his broad global market knowledge have left an extraordinary mark at Goldman Sachs,” Blankfein, 59, said in the statement.

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How could JPMorgan settlement will cost bank closer to $9 billion?

Source: Ruters

According to Reuters, JPMorgan Chase & Co’s preliminary $13 billion mortgage settlement with the U.S. government could end up costing the bank closer to $9 billion after taxes, because the majority of the deal is expected to be tax deductible, two sources familiar with the matter said.

The deduction also means the government is getting less than it appears in this deal. Banks can often deduct legal settlements from their taxes, but cannot get tax benefits from penalties for violating laws.

JPMorgan and the U.S. government have been negotiating the tax treatment of the settlement. The outcome could have a dramatic impact on exactly what the deal ends up costing the bank, how it is perceived by the public and whether it becomes a model for resolving government investigations of mortgage deals at other banks.

JPMorgan is negotiating the settlement with a group of government agencies led by the Justice Department, and the deal is expected to include a $2 billion penalty, one source said.

But another $4 billion of the deal, which will go toward aid for struggling mortgage borrowers, is tax deductible, another person familiar with the negotiations said.

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How could Private-equity Firm Coller Capital manage Intellectual Property?

Source: New York Real Estate Journal

According to Bloomberg, Coller Capital, the private-equity firm founded by British financier Jeremy Coller, is in talks with multiple bidders to join in an offer for BlackBerry Ltd. (BBRY), a person familiar with the discussions said.

Coller will put up some financing as part of the bids, said the person, who asked not be identified because the talks are private. The firm, which buys and sells intellectual property, is seeking to acquire about 10 percent of BlackBerry’s patents if it makes a deal, the person said.

The patents of interest to Coller cover technologies ranging from push notifications to messaging, according to the person. BlackBerry’s intellectual property accounts for as much as 20 percent of the company’s total value, the person said.

BlackBerry, which announced in August that it was entertaining bids, has drawn a number of interested parties, though little in the way of concrete offers. Fairfax Financial Holdings Ltd. (FFH), BlackBerry’s largest investor, signed a tentative agreement to acquire the smartphone maker for $4.7 billion last month — without naming its buyout partners or showing that it has lined up financing. Cerberus Capital Management LP is looking at BlackBerry’s books, whileLenovo Group Ltd. (992) has also expressed interest in a BlackBerry deal, according to people familiar with the matter.

Coller, which has offices in London, New York and Hong Kong, is working with multiple parties to ensure that it’s part of a successful deal, the person with knowledge of the talks said. In addition to offering upfront financing, Coller may also share royalties from licensing the patents with the winning bidder, the person said.

BlackBerry co-founders Mike Lazaridis and Douglas Fregin, who walked away from management positions in the company in recent years, are also contemplating a bid. They said on Oct. 10 that they’re working with Goldman Sachs Group Inc. (GS) to explore the idea.

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Recent Political and Market Events will likely Drive Wall Street Profitability and Compensation Lower

Source: The Wall Street Journal

According to The Wall Street Journal, a strong first half had initially signaled a good year for Wall Street, but recent political and market events will likely drive profitability and compensation lower, according to a report released by New York state Comptroller Thomas DiNapoli.

Profits could total about $5 billion in the second half after generating an estimated $10 billion in the first half, the report said.

Mr. DiNapoli said profits could wane due to rising interest rates, litigation costs associated with settlements with the federal government and the recent political turmoil in Washington over the budget and debt ceiling, according to the report.

“Washington’s inability to resolve budget and fiscal issues is bad for business,” Mr. DiNapoli said in a statement. “Failure to resolve the federal budget and debt ceiling impasse could disrupt the economy and hurt New York City and New York state.”

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According to The Wall Street Journal, J.P. Morgan Discussions Nearly Ended in a Lawsuit

J.P. Morgan Chase (Getty Images)

According to The Wall Street Journal, in the end, it was J.P. Morgan Chase & Co. that blinked.

A day before J.P. Morgan Chief Executive James Dimon and Attorney General Eric Holder tentatively agreed to a record $13 billion settlement Friday, the Justice Department notified the bank it would file a civil lawsuit in six days and seek a large amount of damages from the largest U.S. lender by assets, according to people close to the talks.

The warning helped spur the bank closer to an agreement, even though the pact didn’t provide the bank what it wanted—protection against a continuing criminal probe of past mortgage-bond sales.

The historic agreement, which is being watched from Wall Street to Washington, isn’t finalized. The parties are still negotiating final terms.

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