JPMorgan Settlement Could Set New Record


JPMorgan Chase CEO Jamie Dimon met with Attorney General Eric Holder on Thursday to hash out a settlement to resolve a Department of Justice lawsuit alleging that the bank sold billions in faulty mortgage-backed securities (MBS) to investors from 2005 to 2007.

The meeting followed days of ‘intense negotiations’ during which JPMorgan ultimately offered to pay a roughly $7 billion fine and provide $4 billion in relief for struggling homeowners, according to a New York Times report. Federal officials, however, have reportedly rejected JPMorgan's offer to pay a $7 billion fine and have asked bank officials to offer a larger settlement. The talks are ongoing.

Should JPMorgan end up settling the matter for a sum of $11 billion or more, it would mark the largest penalty ever paid by a U.S. bank.

However, it could potentially pave the way for other U.S. banks accused of selling faulty MBS to reach similar deals, thus allowing them to avoid criminal charges and resultant damage to their reputations.

JPMorgan is facing multiple government investigations into its conduct leading up to the financial crisis. Last week, the bank agreed to pay $920 million in penalties to U.S. and U.K. regulators for violating securities laws in 2012, following separate probes into a $6.2 billion trading loss known as the ‘London Whale’ scandal.

That investigation led to the indictment of two former JPMorgan traders earlier this month: Javier Martin-Artajo and Julien Grout are accused of hiding hundreds of millions of dollars of losses within the bank's chief investment office in London by marking positions in a credit derivatives portfolio at inflated prices. The two men were under the supervision of former trader Bruno Iksil, also known as ‘The London Whale,’ who was involved but reportedly is not likely to face charges in the scandal.

Altogether JPMorgan is facing investigations from seven federal agencies, several state regulators and two foreign governments.

The U.S. attorney's office in Manhattan is reportedly investigating possible violations of the rules of the Federal Housing Administration's mortgage insurance program. The bank is ‘in advanced stages of negotiating that deal,’ according to the New York Times report, which cites anonymous sources.

JPMorgan is also trying to reach a settlement with the Federal Housing Finance Agency, which accused the bank of selling faulty mortgages to government-sponsored enterprises Fannie Mae and Freddie Mac. That settlement could be in the range of $3 billion to $6 billion, according to the report.

The bank is also looking to settle a lawsuit filed by Eric T. Schneiderman, the New York attorney general, pertaining to faulty mortgages that it inherited from Bear Stearns, which it purchased in 2008. A similar case brought by prosecutors in Pennsylvania is focused on mortgages JPMorgan inherited from Washington Mutual when it acquired that firm the same year. These two cases are expected to cost the bank hundreds of millions of dollars to settle.

JPMorgan is also facing a separate lawsuit from federal prosecutors in California regarding MBS it sold to investors pre-crisis. What's more, the bank faces possible criminal charges in a parallel investigation brought by prosecutors from the U.S. attorney's office for the Eastern District of California, also relating to the sale of faulty MBS.

Meanwhile, the Securities and Exchange Commission is investigating whether JPMorgan violated federal bribery laws when it allegedly hired the children of Chinese officials to help it win business in that country.

In addition, the Consumer Financial Protection Bureau is investigating the bank's debt collection practices – and federal prosecutors in Manhattan are investigating whether it failed to sound alarms about Bernard L. Madoff's Ponzi scheme.

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