NEW YORK (Dow Jones)–Banking shares were under pressure Thursday as investors closely examined J.P. Morgan Chase & Co.’s (JPM) quarterly earnings for any cracks in the positive headlines, and as investors remained concerned about macroeconomic conditions.

Also weighing on the sector was continued uncertainty about financial regulation currently making its way through the U.S. Congress. A procedural vote began at 11 a.m. EDT.

J.P. Morgan generated stronger results than expected in its second quarter as the nation’s second-largest bank by assets continued its recovery from sour loans. The bank improved net income in every line of business except investment banking, helped by a 23% reduction in reserves for loans unlikely to be paid back.

Still, J.P. Morgan shares recently fell 1.8% to $39.60, giving back some of their 10% gains since the second quarter ended.

The bank continues to shrink its assets as loans–including bad ones–roll faster off its balance sheet than it can make new ones. Also, investors could be concerned about declining revenue. Investment-banking revenue decreased 13% in the quarter and revenue on a managed basis, which excludes the impact of credit-card securitizations and is on a tax-equivalent basis, fell 7.6%.

In addition, Chief Executive Jamie Dimon poured his trademark cold water over any enthusiasm about the recovery in credit. In a press release, he said losses from bad consumer loans “remain at extremely high levels and therefore returns in our consumer-lending businesses are still unacceptable. As a result, these businesses did not meet expectations nor generate satisfactory returns on capital for our shareholders. It is too early to say how much improvement we will see from here.”

Christopher Whalen, an analyst with Institutional Risk Analytics said the “overall tenor of [the] report is negative despite upbeat headline.” He said investors still have worries about revenue, provision and leverage.

Sandler O’Neill analyst Jeff Harte said Thursday’s stock weakness likely was due to “buy the rumor, sell the news” as J.P. Morgan’s results largely were better than expected.

“Speculation was credit would be pretty good, and it was,” Harte said, though he said the company indicated credit improvements were stabilizing as opposed to continuing getting better. He also said investors could have some concerns about the bank’s revenue, though he doesn’t believe they were that bad.

Also declining were shares of Bank of America Corp. (BAC), down 3.3% to $15.16, and Citigroup Inc. (C), down 2.9% to $4.09. Both companies are set to report earnings Friday, and analysts are expecting largely positive results based on J.P. Morgan’s strong performance Thursday.

“J.P.Morgan’s results indicate from a big picture standpoint that positive trends in the credit cycle are alive and well,” Raymond James analyst Anthony Polini said. But he added results also showed that “the economic recovery is still on soft footing primarily due to a still very weak level of economic activity.”

In broader economic news Thursday, investors sifted through a number of economic reports released before U.S. markets opened, including data that showed weekly jobless claims fell by 29,000 to their lowest level since August 2008. Claims lasting more than one week jumped.

Producer prices, however, fell for a third straight month in June, hurt by falling food and energy costs, though core prices remained tame. New York area manufacturing activity expanded at a slower-than-expected pace in July, according to a survey from the Federal Reserve Bank of New York.

Meanwhile, Goldman Sachs Group Inc. (GS) shares slipped 40 cents to $138.66 after trading higher early in the session on a Wall Street Journal report that the bank and the Security and Exchange Commission recently held discussions about a possible settlement to simultaneously resolve the fraud lawsuit against Goldman and some of the agency’s lower-profile probes of the Wall Street firm’s mortgage department.

The news wasn’t enough to bolster the shares in a generally weaker market. Other financial stocks trading lower included Wells Fargo & Co. (WFC), down 1.8% to $27.15, and Morgan Stanley (MS), down 2.2% to $24.97.

Regional banks also declined, with SunTrust Banks Inc. (STI) falling 3.5% to $24.56 and Regions Financial Corp. (RF) dropping 3.6% to $6.89.

-By Shara Tibken, Dow Jones Newswires; 212-416-2189; shara.tibken@dowjones.com

he Federal Housing Finance Authority, which oversees Fannie Mae and Freddie Mac, has issued 64 subpoenas to various entities, seeking documents related to private-label mortgage-backed securities in which both Fannie and Freddie invested.
The action comes after Fannie Mae and Freddie Mac have been unable to obtain the documents, FHFA says, and are part of an investigation into whether the issuers of those mortgages are liable for losses Fannie and Freddie suffered.
Those being subpoenaed have 30 days to respond. If they don’t cooperate, FHFA says it will consider legal action.
The agency did not identify the various entities being subpoenaed, and said it would not.
Fannie Mae (OTC: FNMA) and Freddie Mac (OTC:FMCC) “have attempted to determine whether misrepresentations, breaches of warranties or other acts or omissions by PLS (private-label securities) counterparties would require repurchase of loans underlying the PLS by the counterparties and whether other remedies might be appropriate,” FHFA said in a statement.
“However, difficulty in obtaining the loan documents has presented a challenge to [their] efforts.”
FHFA says it is stepping in to speed the collection of the data, under power it was granted by the Housing and Economic Recovery Act of 2008.
“By obtaining these documents we can assess whether contractual violations or other breaches have taken place leading to losses for [Fannie Mae and Freddie Mac], and thus taxpayers,” said acting director Edward DeMarco. “If so, we will then make decisions regarding appropriate action.”
Should the agency’s investigation ultimately lead to recovered funds, the money would be applied toward the tens of billions of dollars both Fannie Mae and Freddie Mac have borrowed from the U.S. Treasury.

Read more: FHFA issues subpoenas over Fannie Mae, Freddie Mac mortgages – Washington Business Journal

SAN FRANCISCO (MarketWatch) – Visa Inc. and MasterCard Inc. shares climbed Monday as U.S. politicians reached an agreement on the regulation of interchange, or “swipe,” fees on credit and debit card transactions.

Assistant Senate Majority Leader Dick Durbin said in a statement that an agreement was reached on his amendment regulating such fees. The new language is expected to be eventually accepted by the group of politicians that are trying to craft a final Wall Street reform bill by early July, he added.

“We were able to reach an agreement, which makes minor changes to strengthen consumer protections and bring competition to a market where there is none,” Durbin said in a statement.

Visa shares gained 5% to close at $80.90 while MasterCard rose 4.2% to close at $223.34 on Monday.

Interchange fees are small charges that merchants pay Visa (V 80.99, +0.09, +0.11%) and MasterCard (MA 223.25, -0.09, -0.04%) for the right to accept debit and credit cards run on their payment networks. Those fees are then passed on to card issuers such as the big banks.

Almost $50 billion in interchange fees was collected last year and roughly 80% of that money went to the 10 largest banks in the U.S., including Bank of America Corp. (BAC 15.82, +0.03, +0.19%) and J.P. Morgan Chase & Co. (JPM 38.95, +0.08, +0.21%) , according to Durbin’s office.

Visa and MasterCard shares dropped in May, partly on concern about potential tough limits on interchange fees.

On Monday, Durbin’s office released modifications to his amendment on interchange fee regulation.

One change would allow the Federal Reserve to adjust interchange fees if card-issuing banks can show that an increase is needed to cover fraud-prevention costs.

The interchange rules passed by the Senate would have stopped Visa and MasterCard from preventing merchants from offering discounts to customers to use one network versus another. This provision has been removed from Durban’s modified amendment. In its place is a compromise that would direct the Fed to issue rules preventing networks from requiring that their debit cards only be used on one network.

The original interchange rules defined interchange fees to include debit card fees established by Visa, MasterCard and other networks that accrue to either the bank issuing the card or the network itself.

Monday’s modification states that the Fed can’t regulate network fees, which are fees that Visa and MasterCard charge and keep for themselves. The Fed would only have power over these fees to make sure they aren’t used to get around interchange fee regulation, Durbin explained in a statement.

Despite these changes, the rules will still introduce some limits on interchange fees.

“This agreement is a major victory for small business owners and consumers fed up with big bank and credit card industry rip-offs,” Rep. Peter Welch (D., Vt.) said in a statement. “It preserves key protections for the grocers, retailers and country store owners most affected by out-of-control swipe fees, while addressing legitimate concerns of the industry.”

A spokesman for Visa declined to comment.

Alistair Barr is a reporter for MarketWatch in San Francisco.

(Bloomberg) — Fannie Mae and Freddie Mac, the mortgage firms 80 percent owned by U.S. taxpayers, plunged after regulators told them to delist their common and preferred stock from the New York Stock Exchange.
The Federal Housing Finance Agency, which has overseen the two companies since 2008, ordered the moves as a preemptive step after the New York Stock Exchange told Washington-based Fannie Mae that its shares no longer met listing standards, FHFA Acting Director Edward DeMarco said today.
“A voluntary delisting at this time simply makes sense and fits with the goal of a conservatorship to preserve and conserve assets,” DeMarco said in the statement. The delistings are expected to be effective in early July, the companies said.
Fannie Mae and McLean, Virginia-based Freddie Mac, which own or guarantee more than half of the $11 trillion U.S. mortgage market, have been at risk of delisting since September 2008, when they were taken over by regulators at the height of the credit crisis. Shareholders include Vanguard Group, Blackrock Inc., Kinetics Asset Management and California’s state pension fund.
Shares of Fannie Mae fell 50 percent to 46 cents at 12:02 p.m. in New York Stock Exchange composite trading. Freddie Mac fell 52 percent to 59 cents.
The companies, which are expected to trade on the Over-the- Counter Bulletin Board, will file reports with the U.S. Securities and Exchange Commission after the delisting, DeMarco said.
Treasury Aid
The U.S. Treasury has injected $145 billion into the firms since 2008 to keep them solvent amid rising foreclosures and defaults of mortgages on their books. Treasury Secretary Timothy F. Geithner has promised to support the companies while Congress weighs an overhaul of the nation’s mortgage-finance system. Total taxpayer aid could total hundreds of billions of dollars.
“The delisting is really symbolic,” said David Kovacs, head of quantitative strategies at Berwyn, Pennsylvania-based Turner Investment Partners, which manages $19 billion. “The equity value should’ve been wiped out a couple of years ago,” Kovacs said.
Credit-rater Standard & Poor’s maintained its 12-month target price of $1.50 on shares in the two companies.
“The U.S. government will continue to provide financial support” to the firms, S&P analyst Rafay Khalid said.
NYSE Minimum
Since the government took control of the companies, their shares have hovered near the NYSE minimum 30-day rolling average closing price requirement of $1. The NYSE notified Fannie Mae yesterday that the firm no longer met listing standards because its closing price fell below $1 for the past 30 days.
The decision to delist “does not constitute any reflection on either enterprise’s current performance or future direction, nor does delisting imply any other findings or determination on the part of FHFA as regulator or conservator,” DeMarco said.
Taking steps to boost share prices, for example through a reverse split, would not have guaranteed that the companies would be able to maintain the minimum price level, he said.
With the delisting, “we lose some transparency into what is essentially a large black hole that is eating up a large part of our bailout funds,” said David Lutz, managing director of equity trading at Stifel Nicolaus & Co. in Baltimore.

NEW YORK—Lincoln National Corp., one of three insurers to get bailed out by the U.S. government, said it will repay the funds through a planned sale of more than $1 billion of stock and debt.

Lincoln’s plan to buy back the government’s preferred shares, which still needs the approval of federal regulators, would enable the company to exit the bailout program ahead of its previously announced schedule. Chief Executive Dennis Glass had earlier predicted the insurer could repay the U.S. by the end of 2010, and only recently said the insurer’s exit from the Troubled Asset Relief Program could be accelerated.

The company, with a market value of about $10.6 billion, plans to sell at least $335 million of common stock and up to $750 million of senior notes. Proceeds from the stock offering and $250 million of notes, as well as cash from the holding company, will be used to repurchase the government’s preferred shares. The government took the stake as a condition of Philadelphia-based Lincoln’s $950 million rescue last year.

In addition, $500 million from the debt sale will be used “as part of a long-term financing solution” supporting reserves of Lincoln’s insurance subsidiaries.

If the capital raise and repayment go as planned, Lincoln would exit the government plan ahead of larger rival American International Group Inc.. But it would lag behind Hartford Financial Services Group Inc., which paid back the U.S. in March.

The U.S. Treasury will retain warrants to purchase about 13 million shares of Lincoln stock for $10.92 a share. Lincoln, like Hartford, said it doesn’t intend to buy back those warrants.

Shares of Lincoln rose 5.3% to $27.76 in morning trading. The stock has jumped by almost 50% in the past year.

“We appreciate the critical role the government and the American taxpayers have played in stabilizing the financial markets and we are pleased to announce a plan to repurchase Treasury’s investment sooner than originally anticipated,” Mr. Glass said in a statement.

The U.S. Treasury in early 2009 allowed life insurers to partake in a TARP plan that had originally been intended to inject capital only into banks. To become eligible, Lincoln acquired tiny Newton County Loan & Savings and converted its own holding company so that it was overseen by banking regulators. Lincoln said in a regulatory filing Monday it will “continue to be a savings and loan holding company” after it exits the program.

In April, Lincoln said it swung to a $283 million first-quarter profit as investment results improved. But the repurchase of the preferred stock will result in a charge in income available to common shareholders in an upcoming quarter. The company estimated the charge to be about $131 million as of the end of June. But Lincoln will no longer pay annual dividends of $47.5 million on the preferred shares.

J.P. Morgan Chase & Co. will serve as global coordinator for Lincoln’s planned offerings. Credit Suisse, Morgan Stanley, and Wells Fargo Securities will act as joint book-running managers for the equity offering, while Bank of America Merrill Lynch, Deutsche Bank Securities and U.S. Bancorp will act as joint book-running managers for the debt offering.

Nathan Becker contributed to this article.

Write to Erik Holm at erik.holm@dowjones.com

Peter J. Henning follows issues involving securities law and white-collar crime for DealBook’s White Collar Watch.

We do not often see the leadership of a federal agency publicly announce the issuance of a subpoena while castigating the company for stonewalling, but that is what happened when the Financial Crisis Inquiry Commission called out Goldman Sachs.

While government investigations are usually shrouded in secrecy, the commission’s chairman, Phil Angelides, and the deputy chairman, Bill Thomas, took turns attacking Goldman for not being cooperative. Mr. Thomas hinted ominously that Goldman “may have more to cover up than either we thought or than they told us.”

But is Goldman really engaged in a cover-up, or is this subpoena more a reflection of how the commission has been hamstrung by its limited resources and a rapidly expiring mandate to complete its report to Congress?

Of course, the commission could always take the firm to court. “If Goldman doesn’t comply, the commission can – and should – ask a court to enforce the subpoena,” The New York Times asserted in an editorial. “If Goldman still balks, the court could find Goldman in contempt.” Unfortunately, that may be worse for the commission because of the delays involved in a subpoena-enforcement action.

Congress created the Financial Crisis Inquiry Commission in 2009 and gave it the mission to examine the causes of the financial meltdown that began in 2007.

One of its mandates is to look at “derivatives and unregulated financial products and practices, including credit default swaps,” which is the focus of the subpoena to Goldman.

As part of the commission’s investigative authority, it can issue subpoenas to produce records and compel witnesses to testify. The subpoena to Goldman seeks information about its collateralized debt obligations based on mortgage-backed securities and the customers in its derivatives transactions, as well as a list of the documents it earlier submitted to the Senate Permanent Subcommittee on Investigations.

In addition, the commission is seeking testimony from Goldman employees with knowledge of its C.D.O. sales, including the transaction at the heart of the Securities and Exchange Commission’s civil fraud suit, and testimony from its chief executive, Lloyd C. Blankfein.

The commission released a summary of its dealings with Goldman in seeking the voluntary production of the records that it now has subpoenaed. Despite numerous requests for documents, the commission contends that Goldman delayed in providing the documents until May 18, when it produced five terabytes of records — which the commission estimates to be the equivalent of about three billion pages.

The delay in producing the records is not a surprise because it was merely a request from the Financial Crisis Inquiry Commission without the force of law behind it, something Wall Street firms typically treat as a low priority.

Lawyers are loath to turn over records before they have had a chance to review them and they are concerned about leaks so they try to keep the production to a minimum. Delay in turning over records is nothing new, as the repeated requests from Goldman’s lawyers for extensions show.

The five-terabyte document dump may well have been intended to appear to respond to the earlier document requests without providing the commission with a road map to what would be relevant to its investigation.

With a limited budget and a small staff, the commission could not get through that volume of records in any reasonable amount of time. Given that the commission’s report must be submitted to Congress by Dec. 15, Goldman’s production has all the hallmarks of a stalling tactic while complying with the letter of the requests.

Although the commission has not publicly released the actual subpoena, its summary indicates that it wants Goldman to identify a much narrower range of records that are part of this flood of documents.

Unlike the typical agency investigation seeking a broad range of records that the agency staff can sort through later, the commission cannot afford to wade into the mass of documents it already received to find the needle in the haystack. It needs Goldman to pull out the needle.

How accommodating Goldman will be remains to be seen. The threat to bring an enforcement action against the firm, however, is probably a hollow one.

Under the law authorizing the Financial Crisis Inquiry Commission, it can seek an order from a federal district court to compel compliance with its subpoena, should Goldman balk.

Like any subpoena enforcement action by a federal administrative agency, the commission would bear the burden of demonstrating that the subpoena is authorized by law, the information sought is relevant and the commission has not already obtained the records.

If a court issued an order enforcing the subpoena and the recipient still refuses to comply, the person can be held in civil contempt after a second court proceeding.

The problem with going into federal court to enforce a subpoena is the time involved in the process. Goldman will have some time to comply with the recently issued subpoena and could ask for a delay in providing the required records.

If Goldman still does not comply, or the document production is incomplete, then the commission could go to court to compel production. At that point, Goldman would be afforded an opportunity to file a response, and a hearing would have to be held to review the issues.

The subpoena enforcement process would take weeks at a minimum and could stretch well into the summer.

Thus, the subpoena and accompanying criticism of Goldman by Mr. Angelides and Mr. Thomas are more a cry for help than anything else. The commission needs Goldman’s help in sorting out the C.D.O. transactions if it hopes to complete its report by December.

Although the commission can go into court to compel Goldman to comply with the subpoena, that is more of an empty threat because of the time and energy it would consume.

The public statements about the firm’s purported lack of cooperation appear to be aimed at using public pressure as a substitute for a motion to compel in federal district court.

Questioning whether Goldman is engaged in a cover-up, added to the negative publicity surrounding the S.E.C.’s securities fraud case, is likely to force the firm to demonstrate that it will be fully cooperative.

If nothing else, going to the court of public opinion is a much quicker way to enforce the subpoena and that does not use any of the commission’s limited resources.

– Peter J. Henning

WASHINGTON (AP) — Bank of America will pay $108 million to settle federal charges that Countrywide Financial Corp., which it acquired nearly two years ago, collected outsized fees from about 200,000 borrowers facing foreclosure.

The Federal Trade Commission announced the settlement Monday and said the money will be used to reimburse borrowers.

Bank of America purchased Countrywide in July 2008. FTC officials emphasized the actions in the case took place before the acquisition.

Bank of America said it agreed to the settlement “to avoid the expense and distraction associated with litigating the case,” which also resolves litigation by bankruptcy trustees. “The settlement allows us to put all of these matters behind us,” the company said.

Countrywide hit the borrowers who were behind on their mortgages with fees of several thousand dollars at times, the FTC said. The fees were for services like property inspections and landscaping.

Countrywide created subsidiaries to hire vendors, which marked up the price for such services, the FTC said. The company “earned substantial profits by funneling default-related services through subsidiaries that it created solely to generate revenue,” the agency said in a news release.

The agency also alleged that Countrywide made false claims to borrowers in bankruptcy about the

LONDON (Reuters) – Prudential (LSE:PRU.L – News) will try to draw a line under its botched Asian takeover at an investor meeting on Monday amid signs that investor fury over the deal is abating.

Pru’s annual general meeting on Monday comes less than a week after it was forced to ditch its agreed $35.5 billion takeover of AIG’s (AIG – News) Asian unit following shareholder protests that the deal was too expensive.

The failed bid has cast doubt over the future of Chief Executive Tidjane Thiam, and prompted calls for a review of Pru’s strategy, but two investors on Friday told Reuters there was no need for Thiam to quit.

“Thiam shouldn’t go. He comes across reasonably well operationally. It would be premature for him to go,” one large investor said, declining to be named.

“I am not minded to join the harpies to call for the resignation of management. People do need to calm down a bit,” said a second large shareholder.

WAIT AND SEE

Pru Chairman Harvey McGrath told the Financial Times that the “vast majority” of the group’s big investors did not want Thiam to step down.

“Everyone is in that mode of stopping and considering rather than doing anything rash,” said a third large investor.

“It’s probably better if everyone takes a deep breath and just sits tight for a while.”

Shareholder anger centered on Pru’s handling of the bid, which cost 450 million pounds ($658.8 million) in adviser fees and other charges and was marred by a confidence-sapping intervention over capital from the Financial Services Authority.

Investors and analysts add the bid itself was a legitimate attempt to speed up Prudential’s original strategy of pursuing capital-efficient, Asia-focused growth, and reckon its failure does not justify a strategic rethink.

“Asia can continue to grow, so what’s changed? Pru goes back to the day job, and given the dislocation of the last couple of months, not before time,” said ING analyst Kevin Ryan.

SALES BOOM

What becomes of AIG’s Asian business remains unclear.

AIG CEO Robert Benmosche asked the insurer’s board for time to explore options besides a public offering for its Asian life unit after the Pru deal unraveled, a source familiar with the matter said.

In defending the status quo, Pru is likely to point to a strong performance in the first three months of the year, when its total sales rose by a quarter, driven by 30 percent growth at the flagship Asian division.

“It’s a good business,” one investor said. “So yes, business as usual is fine. It may be incredibly boring, but it works.”

Investors and analysts play down renewed talk that Pru could be sold and broken up in the hope its parts would fetch more than the group is worth as a whole, citing difficulties in financing any such takeover in current volatile markets.

“They don’t need to do anything immediately. The break-up option is very hard to achieve and people will be very naive to assume that it can just be taken over in its entirety, or just be broken up very easily,” said the first investor.

Pru, made up of fast-growing Asian and U.S. divisions complemented by a mature but cash-generative UK arm, has long been the subject of break-up talk, fueled in part by concerns its share price undervalues its fast-growing Asian operation.

Pru’s biggest shareholder, U.S.-based Capital Research & Management, was reported in April to have explored a break-up of Pru as an alternative to the AIA deal.

(Editing by Michael Shields)

NEW YORK (Reuters) – The jarring “flash crash” on May 6 yielded a record trading day at TD Ameritrade Holding Corp (Nasdaq:AMTD – News), although some customers were upset with the market breakdown that day, the U.S. online brokerage’s chief said on Thursday.

“Like everyone else, that day was a big day for us,” CEO Fred Tomczyk said at the Sandler O’Neill conference here. “We had a lot of trades. We don’t talk too publicly about the number, but that day was a record day for us.”

With Europe’s debt woes already weighing on the Dow Jones industrial average May 6, it plunged that afternoon some 700 more points in minutes before sharply rebounding, rattling investors globally and touching off a series of regulatory changes in the equities markets.

“Not every investor or trader was happy with their execution because of what happened in the markets and market structure,” Tomczyk said. “But our technology held up very, very well that day. We did not have any outages.”

TD Ameritrade is the second-largest U.S. discount broker and operator of the largest retail trading platform. It and its peers are expected to report May trading volume, known as daily average revenue trades, or DARTS, later this month.

The sharp volatility last month is expected to give the industry a big boost.

(Reporting by Jonathan Spicer, editing by Maureen Bavdek)

(Reuters) – Lehman Brothers Holdings Inc (LEHMQ.PK) on Wednesday sued JPMorgan Chase & Co (JPM.N), accusing the second-largest U.S. bank of illegally siphoning billions of dollars of desperately-needed assets in the days leading up to its record bankruptcy.

The lawsuit filed in Manhattan bankruptcy court accused JPMorgan of using its “unparalleled access” to inside details of Lehman’s distress to extract $8.6 billion of collateral in the four business days ahead of Lehman’s September 15, 2008, bankruptcy, including $5 billion on the final business day.

JPMorgan was Lehman’s main “clearing” bank, in which it acts as a go-between in Lehman’s dealings with other parties.

According to the complaint, JPMorgan knew from this relationship that Lehman’s viability was fast weakening, and threatened to deprive Lehman of critical clearing services unless it posted an excessive amount of collateral.

“With this financial gun to Lehman’s head, JPMorgan was able to extract extraordinarily one-sided agreements from Lehman literally overnight,” the complaint said. “Those billions of dollars in collateral rightfully belong to the Lehman estate and its creditors.”

Lehman also said JPMorgan officials including Chief Executive Jamie Dimon decided to extract the collateral after learning from meetings with Federal Reserve Chairman Ben Bernanke and then-U.S. Treasury Secretary Henry Paulson that the government would not rescue Lehman from bankruptcy.

In the widely expected lawsuit, Lehman and its official committee of unsecured creditors are seeking $5 billion of damages, a return of the collateral and other remedies.

JPMorgan spokesman Joe Evangelisti called the lawsuit “meritless,” and said the bank will defend against it.

Any money recovered could increase the payout to creditors. Lehman has also sued Barclays Plc (BARC.L) to recover an $11.2 billion “windfall” from the takeover of U.S. assets.

In March, a bankruptcy judge approved an accord providing for JPMorgan to return several billion dollars of assets to Lehman’s estate, but giving Lehman a right to sue further.

Lehman collapsed after letting its balance sheet swell through exposure to commercial real estate, subprime mortgages and other risky sectors. With $639 billion of assets, Lehman was by far the largest U.S. company to go bankrupt.

EXAMINER REPORT

In his March report on Lehman’s bankruptcy, court-appointed examiner Anton Valukas said Lehman could raise a “colorable claim” against JPMorgan over the collateral demands.

He nevertheless said JPMorgan could raise “substantial defenses” under U.S. bankruptcy law.

Evangelisti contended that “as the examiner’s report makes clear, it was the ill-advised decisions of Lehman and its principals to take on perilous leverage and to double down on subprime mortgages and overpriced commercial real estate — and not conduct by our firm — that led to Lehman’s demise.”

Lehman, though, maintained that JPMorgan extracted the collateral to “catapult” itself ahead of other creditors.

“A century ago, John Pierpont Morgan used his position atop the world of finance to shore up a teetering firm and rescue the nation from the brink of financial collapse,” the complaint said, referring to the Panic of 1907.

“A century later, when the nation faced another epic financial crisis, Morgan’s namesake firm stripped a faltering Lehman Brothers of desperately needed cash,” it added.

The case is In re: Lehman Brothers Holdings Inc et al, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.

(Reporting by Jonathan Stempel; Additional reporting by Matthew Goldstein; Editing by Phil Berlowitz, Bernard Orr, Gary Hill)