Hedge fund Fir Tree Partners is trying to throw a wrench in JPMorgan Chase's plan to settle its mortgage-backed securities headache.
JPMorgan struck a $4.5 billion settlement with institutional investors in November, covering 330 residential mortgage-backed securities trusts. Of those, Fir Tree has ferreted out six that it thinks it can do better with.
To do so, the hedge fund last week launched a tender offer, promising bondholders more cash now than they are likely to get in the settlement. Fir Tree hopes to buy up enough bonds to refuse the settlement, and then sue JPMorgan for a higher return. The hedge fund has already sought litigation on five of the deals.
"For the RMBS subject to our tender, our offer is a current, fixed alternative to the 'to-be-determined' JPM Settlement that may or may not occur at some future time," Fir Tree managing director Clinton Biondo said. "Our offer gives holders an opportunity to exchange the uncertainty of future actions for the certainty of a fixed payment that we believe is higher than the recovery under the current proposed JPM Settlement. We urge holders to make their own decision based on their own evaluation of available information."
Fir Tree says that the settlement will pay about 7.5%, while it offers 10%.
The hedge fund has made the offer in spite of some serious obstacles to their lawsuit plan. A recent New York court ruling found that the statute of limitations has already passed for such litigation, and, The New York Times reports, banks could accuse the firm of insider-trading, using information it received during litigation to decide to make the offer.
Fir Tree's offer expires on Feb. 19.