JP Morgan in record $13bn settlement with US regulators
The settlement is the largest ever between a corporation and the US government
US
bank JP Morgan has agreed to a record $13bn (£8bn) settlement with US
regulators for misleading investors during the housing crisis.
It is the largest settlement ever between the US government and a corporation.
The bank acknowledged it made "serious misrepresentations to the public", but said it did not violate US laws.
"We are pleased to have concluded this extensive agreement," said JP Morgan boss Jamie Dimon in a statement.
About $4bn of the settlement is to go to homeowners hurt by JP Morgan's practices.
Recent JP Morgan fines
- 19 November - $13bn fine with US regulators; includes previously announced $4bn fine with the Federal Housing Finance Agency (FHFA)
- 15 November - $4.5bn settlement with investors over mortgage-backed security losses
- 25 October - $1.1bn settlement for home loans paid to US mortgage giants Fannie Mae & Freddie Mac (part of FHFA settlement)
- 19 September - $920m paid over "London whale" loss to US & UK regulators; an additional $100m fine was paid to the Commodity Futures Trading Commission on 16 October
Another $7bn will be paid to
settle federal and state civil claims relating to misleading mortgage
securities sold by the bank, Some of that will be given to investors who
lost money.
The remaining $2bn will be paid to the US government as a fine.
"The conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown," said Attorney General Eric Holder in a statement.
Although the settlement effectively concludes the US
government's civil investigation into the bank, a criminal investigation
by the Department of Justice is ongoing.
Faulty mortgages
JP Morgan has worked hard to put the mortgage crisis of 2006-2007 behind it.
“There are a lot of banks that are actually pretty well managed — J.P. Morgan being a good example”
US President Barack Obama 2009
The bank has been under
investigation for selling low-quality mortgage-backed securities to
investors who were unaware that the securities often contained faulty
mortgage products.
According to the statement from the Department of Justice:
"JP Morgan employees knew that the loans in question did not comply with
those guidelines and were not otherwise appropriate for securitization,
but they allowed the loans to be securitized - and those securities to
be sold - without disclosing this information to investors."
A large portion of the mortgages under investigation by
authorities were bought by JP Morgan when it acquired banks Bear Stearns
and Washington Mutual at the height of the financial crisis of
2008-2009.
"Today's settlement covers a very significant portion of
legacy mortgage-backed securities-related issues for JP Morgan Chase, as
well as Bear Stearns and Washington Mutual," said Mr Dimon.
On a call to discuss the fine, JP Morgan Chief Financial
Officer Marianne Lake said that 80% of the bad loans at the centre of
the fine can be attributed to Bear Stearns and Washington Mutual.
New York Attorney Eric Schneiderman tweeted a picture of him signing the agreement
The fine represents a sharp fall for JP Morgan, known for its
so-called "fortress balance sheet" and traditionally strong reputation
on Wall Street.
Boss Jamie Dimon was also a favourite with politicians in Washington, even being praised by US President Barack Obama.
Mr Obama told ABC News in 2009 at the height of the financial
crisis: "There are a lot of banks that are actually pretty well managed
— JP Morgan being a good example — I don't think Jamie should be
punished for doing a pretty good job managing an enormous portfolio."
But that all seems to have changed in recent months.
Last Updated at 19 Nov 2013, 16:01 ET
Last month, the bank agreed to pay more
than $1bn to help it end various investigations into its 2012 "London
whale" trading debacle, which cost the bank more than $6bn and raised
questions about its oversight procedures.
The firm also reported a rare loss last quarter, having set
aside an additional $9bn to help it deal with its mounting legal
troubles.
JP Morgan says it has set aside a total of $23bn to help it
work through its many investigations by regulators in the US and abroad.
Worst behind them
Nonetheless, many investors seem to continue to think that the bank will emerge relatively unscathed from the fines.
"The share price is bumping up against a ten year high," Duff McDonald, author of a book on JP Morgan, told the BBC.
"While no one likes a fine especially of this magnitude, I
think shareholders are responding positively to it because it's
resolving some uncertainty around the company."
While the settlement with the US Justice Department does mean
that the bank has put the worst of its expected fines behind it, there
are still nine ongoing investigations by regulators into practices at
the bank.
These investigations include that bank's hiring practices in
China, as well as accusations that bankers at JP Morgan manipulated the
Libor benchmark interest rate.