October 25, 2013 6:25 pm

JPMorgan settlement move spurs rivals to act

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Global banks have started to approach New York’s attorney-general about paying billions of dollars to settle charges they mis-sold mortgage-backed securities that were at the heart of the financial crisis, following JPMorgan Chase’s tentative agreement to a $13bn settlement.

“I have already had expressions of interest from other institutions,” Eric Schneiderman, New York attorney-general, said in an interview with the Financial Times.

“It is my hope that [JPMorgan’s deal] is the first of a series of settlements that collectively will be the largest financial settlement in the history of the US,” he added as JPMorgan confirmed a portion of the pact – a $5.1bn settlement with the Federal Housing Finance Agency.

Mr Schneiderman, who is co-chairman of the working group that is investigating sales of mortgage-backed securities, has been at the forefront of the drive to hold banks to account for the financial crisis.

He declined to identify which institutions had contacted his office but at least nine banks, including Royal Bank of Scotland, Credit Suisse and Bank of America, are under investigation for mortgage securities sales in the lead-up to the financial crisis, as previously reported by the FT.

JPMorgan’s $13bn settlement is comprised of cash and homeowner relief, including the renegotiation of mortgages for borrowers who owe more money than their house is worth.

On Friday, the FHFA announced that the bank would pay $4bn to settle claims it misled Fannie Mae and Freddie Mac, the government-backed mortgage companies over mortgage securities, and another $1.1bn related to single-family mortgages that Fannie and Freddie bought.

Mr Schneiderman said he viewed JPMorgan’s tentative deal as “a template” for future settlements. “Some banks may provide more consumer relief or more cash. The idea is it’s time to pay up for the misconduct that caused the bubble and crash of the American housing market,” he said.

“The idea that runs through all of our work in this area is to get money to people who are hurt,” he added.

The US Department of Justice, which has led settlement talks with JPMorgan, has more than 200 lawyers, analysts and investigators from 10 US attorneys’ offices involved in the working group.

Earlier this year, the DoJ took stock of its case load, prioritised investigations and added resources to matters where the evidence suggested there could be a case.

“The attorney-general put his foot on the gas earlier in the year,” said Tony West, an associate attorney-general at the DoJ who oversees the working group. “We went through a process of paring and prioritising. I think we’re bearing the fruit from that direction.”

The surge in activity has led to pressure for settlements that could run into billions of dollars, catching many banks off guard. When the working group was announced by President Barack Obama in 2012 it was initially viewed as an election strategy to win the support of Democrats who felt the administration was not holding Wall Street and its executives to account for the financial crisis.

It is not clear if any executives will be charged in the ongoing investigations.

“I think we will continue to pursue the facts and the evidence whether they lead to institutions or to individual accountability,” said Mr West, who declined to discuss any specific investigation. “We don’t try to prejudge the evidence and where it will go, but we don’t hesitate to follow it,” he said.

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