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 The person said the documents spelling out the agreement could
be signed as early as Tuesday.
The person spoke on condition of anonymity because the settlement has yet to be
finalized.
Another person familiar with the talks, also speaking only on condition of
anonymity, said the two sides were "very close" to a final agreement.
The deal is the largest ever reached between the government and a corporation.
It eclipses the record $4 billion levied on oil giant BP in January in the worst
offshore oil spill in U.S. history.
The nation's biggest bank will pay more than $6 billion to compensate investors,
pay $4 billion to help struggling homeowners and pay the remainder as a fine.
The final issue — one that was not resolved until Monday — revolved around the
$4 billion to compensate consumers. According to the first person close to the
talks, some $1.5 billion will be a write-down to reduce the principal of
homeowner loans, $300 million will enable homeowners to pay less now on their
mortgages and the remainder of the $4 billion will go toward reducing mortgage
interest rates, originating new loans and helping revive blighted properties in
some of the hardest hit areas of the housing crisis such as Detroit. An
independent monitor will be appointed to oversee the assistance to homeowners.
The deal is the latest chapter in the burst of the housing bubble in 2007 when
bundles of mortgages sold by JPMorgan and other financial institutions left
investors with billions of dollars in losses.
JPMorgan has said that most of its mortgage-backed securities came from Bear
Stearns Cos. and Washington Mutual Inc., troubled companies that JPMorgan
acquired in 2008.
Still to come is a decision on whether the Justice Department will file criminal
charges against JPMorgan. An investigation is under way by the U.S. Attorney's
office in Sacramento, Calif.
As part of the $6 billion to investors, $4 billion will resolve government
claims that JPMorgan misled mortgage finance giants Fannie Mae and Freddie Mac
about risky mortgage securities the bank sold them before the housing market
crashed. That part of the deal was announced on Oct. 25. Fannie and Freddie were
bailed out by the government during the crisis and are under federal control.
The Justice Department and the banks reached a tentative
settlement in mid-October on the $13 billion, but the negotiations hit a
stumbling block that has now been resolved. As part of any settlement, JPMorgan
wanted to be able to collect money from a receivership involving Washington
Mutual Inc., the biggest U.S. savings and loan. The S&L failed and was purchased
by JPMorgan. The Federal Deposit Insurance Corp., which maintains stability and
public confidence in the banking system, said JPMorgan should be responsible for
any liabilities regarding the Washington Mutual acquisition. Under the
arrangement, JPMorgan cannot seek reimbursement from FDIC for any part of the
deal, said the person close to the talks.
The $13 billion JPMorgan settlement amount is only about half of its record 2012
net income of $21.3 billion, or $5.20 a share, which made it one of the most
profitable U.S. banks last year.
Mounting legal costs from government proceedings pushed JPMorgan to a rare loss
in this year's third quarter, the first under CEO Jamie Dimon's leadership. The
bank reported Oct. 11 that it set aside $9.2 billion in the July-September
quarter to cover the string of legal cases against the bank. JPMorgan said it
has placed $23 billion in reserve to cover potential legal costs.
[to top of second column] |
On Friday, the company announced it had reached a $4.5 billion
settlement with 21 major institutional investors over
mortgage-backed securities issued by JPMorgan and Bear Stearns
between 2005 and 2008. The investors, which include Goldman Sachs,
said the bank deceived them about the quality of high-risk mortgage
securities.
JPMorgan has faced other issues as well.
-
In September, the company agreed to pay $920 million and to
admit that it failed to oversee trading that led to a $6 billion
loss last year in its London operation. In a separate case, the
bank agreed to pay a $100 million penalty and admitted that its
traders acted "recklessly" with the London trades. The Justice
Department is still pursuing a criminal investigation of the
trading loss and a possible cover-up at the bank.
-
JPMorgan says it is responding to investigations by the
Justice Department and other regulators in litigation over the
Bernard Madoff Ponzi scheme, one of history's biggest frauds.
JPMorgan has previously faced accusations that it and other
banks ignored signs that Madoff was a con artist.
-
The bank agreed to pay $410 million to settle allegations by
federal energy regulators that it used improper bidding
strategies to manipulate electricity prices in California and
the Midwest over a two-year period.
- JPMorgan is one of several big international banks that have
revealed they are subjects of an investigation into possible
manipulation of currency trades.
Other banks have run into trouble too.
In August, the Justice Department accused Bank of America Corp., the
second-largest U.S. bank, of civil fraud in failing to disclose
risks and misleading investors in its sale of $850 million in
mortgage bonds in 2008. The Securities and Exchange Commission filed
a related lawsuit. The government estimates that investors lost more
than $100 million. Bank of America disputes the allegations.
Goldman Sachs, Citigroup and other big banks — as well as JPMorgan —
have been accused by the SEC of abuses in sales of securities linked
to mortgages in the years leading up to the crisis. Together they
have paid hundreds of millions in penalties to settle civil charges
brought by the SEC, which accused them of deceiving investors about
the quality of the bonds they sold. JPMorgan settled SEC charges in
June 2011 by agreeing to pay $153.6 million and reached another such
agreement for $296.9 million last November.
The banks in all the SEC cases were allowed to neither admit nor
deny wrongdoing — a practice that brought criticism of the agency
from judges and investor advocates.
[Associated
Press; MARCY GORDON and PETE YOST]
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