Emails filed in a lawsuit implicate JP Morgan in being negligent with mortgage security, The New York Times reports.
In a lawsuit filed by Dexia, a Belgian-French bank, emails and employee interviews show that executives at JP Morgan knew that the mortgage securities they were packaging to customers were not as healthy as they were made to appear. Dexia has filed suit after claiming they were duped into buying around $1.6 billion in the mortgage backed securities.
Emails show that an executive at Bear Sterns, acquired by JP Morgan during the crisis, referred to their operations as an assembly line. “We are a moving company, not a storage company,” that executive reportedly said.
As profits soured in the mortgage industry, the bank began churning out more securities at the expense of quality. Rather than report that borrowers were overextended, they chose to ignore the problems, according to the lawsuit. JP Morgan has “strongly denied wrongdoing,” the Times reported.
The suit comes at a time when legal action is ramping up against those perceived responsible for the financial crisis. Earlier this week the Department of Justice went after Standard and Poor’s for faulty credit ratings.
The DOJ cited improper aligning of incentives as a reason for the inflated ratings. As more information surfaces within the suits, more banks and financial entities could see legal action coming their way.
“The true price tag for the ongoing costs of the litigation is terrifying,” said Christopher Whalen, a senior managing director at Tangent Capital Partners.