JP Morgan Chase 2013 Annual Report Download - page 326

Notes to consolidated financial statements
332 JPMorgan Chase & Co./2013 Annual Report
Sworn Documents, Debt Sales and Collection Litigation
Practices. The Firm has been responding to formal and
informal inquiries from various state and federal regulators
regarding practices involving credit card collections
litigation (including with respect to sworn documents), the
sale of consumer credit card debt and securities backed by
credit card receivables. In September 2013, JPMorgan
Chase Bank, N.A., Chase Bank USA, N.A. and JPMorgan Bank
and Trust Company, N.A. (collectively, the “Banks”) entered
into a consent order with the OCC regarding collections
litigation processes pursuant to which the Banks agreed to
take certain corrective actions in connection with certain of
JPMorgan Chase’s credit card, student loan, auto loan,
business banking and commercial banking customers who
defaulted on their loan or contract.
Separately, the Consumer Financial Protection Bureau and
multiple state Attorneys General are conducting
investigations into the Firm’s collection and sale of
consumer credit card debt. The California and Mississippi
Attorneys General have filed separate civil actions against
JPMorgan Chase & Co., Chase Bank USA, N.A. and Chase
BankCard Services, Inc. alleging violations of law relating to
debt collection practices.
Washington Mutual Litigations. Proceedings related to
Washington Mutual’s failure are pending before the United
States District Court for the District of Columbia and include
a lawsuit brought by Deutsche Bank National Trust
Company, initially against the FDIC, asserting an estimated
$6 billion to $10 billion in damages based upon alleged
breach of various mortgage securitization agreements and
alleged violation of certain representations and warranties
given by certain Washington Mutual, Inc. (“WMI”)
subsidiaries in connection with those securitization
agreements. The case includes assertions that JPMorgan
Chase may have assumed liabilities for the alleged breaches
of representations and warranties in the mortgage
securitization agreements. The District Court denied as
premature motions by the Firm and the FDIC that sought a
ruling on whether the FDIC retained liability for Deutsche
Bank’s claims. Discovery is underway.
An action filed by certain holders of Washington Mutual
Bank debt against JPMorgan Chase, which alleged that
JPMorgan Chase acquired substantially all of the assets of
Washington Mutual Bank from the FDIC at a price that was
allegedly too low, remains pending. JPMorgan Chase and
the FDIC moved to dismiss this action and the District Court
dismissed the case except as to the plaintiffs’ claim that the
Firm tortiously interfered with the plaintiffs’ bond contracts
with Washington Mutual Bank prior to its closure. Discovery
is ongoing.
JPMorgan Chase has also filed a complaint in the United
States District Court for the District of Columbia against the
FDIC in its capacity as receiver for Washington Mutual Bank
and in its corporate capacity asserting multiple claims for
indemnification under the terms of the Purchase &
Assumption Agreement between JPMorgan Chase and the
FDIC relating to JPMorgan Chase’s purchase of most of the
assets and certain liabilities of Washington Mutual Bank.
* * *
In addition to the various legal proceedings discussed
above, JPMorgan Chase and its subsidiaries are named as
defendants or are otherwise involved in a substantial
number of other legal proceedings. The Firm believes it has
meritorious defenses to the claims asserted against it in its
currently outstanding legal proceedings and it intends to
defend itself vigorously in all such matters. Additional legal
proceedings may be initiated from time to time in the
future.
The Firm has established reserves for several hundred of its
currently outstanding legal proceedings. The Firm accrues
for potential liability arising from such proceedings when it
is probable that such liability has been incurred and the
amount of the loss can be reasonably estimated. The Firm
evaluates its outstanding legal proceedings each quarter to
assess its litigation reserves, and makes adjustments in
such reserves, upwards or downwards, as appropriate,
based on management’s best judgment after consultation
with counsel. During the years ended December 31, 2013,
2012 and 2011, the Firm incurred $11.1 billion, $5.0
billion and $4.9 billion, respectively, of legal expense. There
is no assurance that the Firm’s litigation reserves will not
need to be adjusted in the future.
In view of the inherent difficulty of predicting the outcome
of legal proceedings, particularly where the claimants seek
very large or indeterminate damages, or where the matters
present novel legal theories, involve a large number of
parties or are in early stages of discovery, the Firm cannot
state with confidence what will be the eventual outcomes of
the currently pending matters, the timing of their ultimate
resolution or the eventual losses, fines, penalties or impact
related to those matters. JPMorgan Chase believes, based
upon its current knowledge, after consultation with counsel
and after taking into account its current litigation reserves,
that the legal proceedings currently pending against it
should not have a material adverse effect on the Firm’s
consolidated financial condition. The Firm notes, however,
that in light of the uncertainties involved in such
proceedings, there is no assurance the ultimate resolution
of these matters will not significantly exceed the reserves it
has currently accrued; as a result, the outcome of a
particular matter may be material to JPMorgan Chase’s
operating results for a particular period, depending on,
among other factors, the size of the loss or liability imposed
and the level of JPMorgan Chase’s income for that period.