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October 19, 2013 8:50 pm
JPMorgan Chase has reached a tentative deal to pay $13bn to resolve state and federal investigations into its mis-selling of mortgage-backed securities, people familiar with the matter say.
The settlement, which is still being finalised, would be a record amount for any single US company. The deal, struck after weeks of negotiations, would resolve all civil mortgage litigation for JPMorgan, ending a torturous period that caused the nation’s largest bank by assets to report its first quarterly loss under chief executive Jamie Dimon.
The settlement with the Department of Justice, Federal Housing Finance Agency and New York attorney-general relates to underwriting and packaging of mortgage-backed securities in the run-up to the financial crisis.
The bank is expected to admit to some wrongdoing as part of the deal, but the final terms are still being negotiated.
The settlement is $2bn more than the terms that were being negotiated previously.
The agreement was hammered out in a phone call late on Friday night between Mr Dimon and Steve Cutler, the bank’s general counsel, and Eric Holder, the attorney-general, and Tony West, his deputy, people close to the situation say.
Mr Cutler and Mr West are continuing to negotiate a statement of facts, a person familiar with the matter said. JPMorgan had been pushing for any settlement to provide some assurance against criminal prosecution, but in the final days Mr Dimon relented and agreed to sign a pact without it.
The higher than expected amount of the settlement follows earlier talks for the bank to pay $7bn in cash and provide $4bn in consumer relief, but those negotiations faltered despite Mr Dimon travelling to Washington to meet Mr Holder in person.
On Friday, JPMorgan struck a $4bn deal with the FHFA to resolve their claims. The talks continued, leading to the $13bn federal and state settlement.
New York attorney-general Eric Schneiderman sued JPMorgan last year alleging that Bear Stearns had mislead buyers of mortgage-backed securities. FHFA filed a lawsuit against 11 banks, including JPMorgan in 2011.
Representatives for JPMorgan and DoJ declined to comment.
JPMorgan took a $9.2bn litigation charge last week, most of which is attributed to lawsuits accusing JPMorgan and two companies it bought in 2008 – Bear Stearns and Washington Mutual – of packaging poor-quality home loans into securities that later plunged in value.
Mr Dimon said last week about the settlement talks: “It’s a board-level decision.” Directors wanted “consideration for all the things the company went through to help” during the financial crisis. This was in reference to JPMorgan’s acquisitions of WaMu and Bear during the crisis, which were encouraged by the US government to prevent their failure.
JPMorgan last week enumerated its litigation reserves – an enormous $23bn – for the first time and said that “reasonable possible losses” on top of that amount were $5.7bn. If that entire sum were paid, it would wipe out the past six quarters of profit.
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