Wednesday, February 16, 2011

JPM Sued By Allstate

The banking sector is a mess.  Every day a judicial ruling goes against them, a lawsuit is entered, you name it.  Today was no different with Allstate now suing JPM (it has already filed suit against BAC) claiming reps and warranty violations on RMBS purchased.  JPM catches a bid in the face of a nearly 700 Million suit.  Pure comedy.

This suit is similar to that Allstate filed against BAC, as it uses statistical sampling to quantify put back amounts.  BAC had argued they would force anyone requesting a put back to go loan by loan but in a prior ruling a judge said no.  We are not talking a few loans that violates reps and warranties.  We are talking upwards of 70% if not more.

The market continues to ignore any negative banking news.  Either because the reality is too difficult to understand or people simply believe it will go away on its own.  It won't. Stay focused on the issues facing the banking sector.  If not for a longer term short trade, then at least a reason not to invest in any of these true zombie banks.  We are a credit event away from another financial crisis and the banks are weaker now than they were in 2008.  


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