J.P. Morgan Chase & Co is in "advanced discussions" with the US Securities and Exchange Commission to resolve a probe into its role in selling collateralized debt obligations, the bank said. Friday's disclosure by the second-largest US bank comes a day after court documents revealed that the SEC had subpoenaed Credit Suisse for documents related to home loan securitizations.
The SEC declined to comment. J.P. Morgan previously said it had received "a number of subpoenas and informal requests" from federal and state authorities over CDOs and mortgage-backed securities. The SEC also subpoenaed J.P. Morgan this week along with Credit Suisse for records related to mortgage securitizations, according to a report from Bloomberg News.
CDOs and mortgage-backed securities were at the heart of the 2008 financial crisis. Wall Street banks vacuumed up home loans, often subprime mortgages, and repackaged them into bonds and other securities that were sold with top-notch credit ratings. When the US housing market crashed, the securities plummeted in value, generating enormous losses for investors around the world. Recent government reports and lawsuits have accused traders and bank executives of knowingly packaging dodgy loans into bonds and other securities, at times even betting the bonds would crater in value as they touted them to clients.
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