JP Morgan Chase to Pay $13 Billion for MBS, Loan Claims

It is being billed as the largestrnsingle-institution settlement arising from the financial crisis.  JPMorgan Chase (JPM) has agreed to pay $13rnbillion dollars to resolve multiple investigations involving its mortgagedrnbacked securities (MBS) and other derivatives. rnThe civil settlement however is said to have no bearing on other ongoingrncriminal investigations of the bank. </p

While there has been no official release from the Department of Justicern(DOJ) which negotiated the settlements or from JP Morgan itself, it is widely reportedrnthat the settlement includes $9 billion in fines and $4 billion in relief forrnconsumers.   Reuters is reporting that 80 percent of the settlementrninvolves investigations of the mortgage business of Washington Mutual and BearrnStearns, which were both acquired by JPM. rnOthers are reporting that the $4 bln in consumer relief arises out of claimsrnfrom the Federal Housing Finance Agency that the bank sold improperly vettedrnmortgages to Freddie Mac and Fannie Mae, loans which eventually defaulted.   </p

The Washington Mutual and Bear Stearns claims involved activities at thoserncompanies between 2005 and 2007.  Theserninvestigations had been a major sticking point for Chase which maintained theyrnshould not be held responsible for the actions of those companies which thernbank acquired after those dates.  JPM ChiefrnExecutive Jamie Dimon has claimed that his company acquired Bear Stearns as “arnfavor” to the Federal Reserve at the height of the financial crisis.</p

JP Morgan had most recently offered $11 billion to end the suits butrninsisted that a non-prosecution agreement that would also terminate a federalrncriminal investigation in Sacramento be included.  It was reported that Dimon held telephonerntalks with Attorney General Eric Holder this past week which resulted in thernadditional $2 billion payment but that Holder refused to budge on the criminalrnaction.  The settlement also resolves arnseparate case in which New York Attorney General Eric Schneiderman had sued thernbank over deceptive practices in Bear Stearns sales of mortgage bonds.  It may involve the termination of otherrninvestigations as well. </p

This is only the latest in a series of recent legal blows leveled at thernbank’s finances.  JPM recently paid $1rnbillion in penalties in the so-called “London Whale” trading scandal in whichrnit also lost $6 billion and $80 million to the Consumer Financial ProtectionrnBureau over charges of unfair credit card billing practices (in addition to $309 million set aside for consumer claims).  Last summer it agreed to a $410 million dollarrnsettlement over charges it manipulated electricity prices in two regions of therncountry.  The firm is also beingrninvestigated for its involvement in the Libor rate fixing probe and for allegedrnbribery of officials in China.  </p

The legal problems caused JPM to post a third quarter loss of $380 million,rnits first in nine years.  It says it isrnholding $23 billion in reserves for other potential legal expenses, an amountrnwhich Bloomberg says could fall as much as $6 billion below what could bernneeded in a worst-case scenario.  JPMrnstock, which closed last week at more than triple its $14.50 March 2009 low,rnwas down $0.16 to $54.14 in early morning trading.</p

There are also rumors this morning that FHFA is seeking another $6 billionrnfrom Bank of America to settle claims the banks sold faulty mortgages to FanniernMae and Freddie Mac which are under federal conservatorship.  Both FHFA and the bank have thus far refusedrncomment.

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