JPMorgan Chase and the Justice Department reportedly have finalized the bank's $13 billion settlement of a civil inquiry into the sale of low-quality mortgage-backed securities that sunk in value during the 2008 financial crisis.
It's a record settlement between the government and a corporation, easily passing the $4 billion levied on oil company BP in January, resulting from the worst offshore oil spill in U.S. history.
JPMorgan's deal with federal regulators will cost it roughly half of last year's profit and once again portrays the institution as the poster child for bad bank behavior. But in a report last month by American Banker, a Collections & Credit Risk sister publication, the reality is the deal may set the country's largest bank free and allow CEO Jamie Dimon to finally put a run of scandals to rest and return to what he does best making money.
It's financial regulators and other big banks that will likely suffer in the long-term from the deal.
The final settlement terms are expected to be announced Tuesday, several news agencies reported Monday. The deal apparently addresses all civil issues in the case, but the Justice Department retains the right to continue a criminal investigation being conducted by the U.S. Attorney's Office in Sacramento, Calif.
Last week, JPMorgan announced it had reached a $4.5 billion settlement with 21 major institutional investors over mortgage-backed securities issued by JPMorgan and Bear Stearns Cos. between 2005 and 2008. The investors, which include Goldman Sachs, said the bank deceived them about the quality of high-risk mortgage securities.
In the $13 billion settlement, JPMorgan will pay more than $6 billion to compensate investors, $4 billion to help struggling homeowners and the remainder as a fine.
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.
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.