JPMorgan’s $13B Settlement: One Down, How Many to Go?



The Department of Justice, or DOJ, and JPMorgan Chase & Co. (NYSE:JPM) have reportedly reached an agreement in the pending $13 billion settlement. One person familiar with the matter told CBS the settlement ends any civil litigation, but the criminal investigation in California can continue.

The final terms may be announced as soon as Tuesday. The federal government has been probing JPMorgan over its sale of mortgage-backed securities leading up to the financial crisis. The value of the securities deteriorated, and so did the housing market. JPMorgan maintains that most of the troubled assets came from its acquisition of Bear Stearns, and Washington Mutual Inc.

AP also contacted sources who wished to remain anonymous. The final sticking point in the settlement, the sources say, was over $4 billion worth of compensation for consumers. The $4 billion will likely be distributed in the following manner. Specifically, $1.5 billion available to reduce the principle on homeowner loans, and $300 million toward reducing homeowners’ mortgage payments. The rest of the $4 billion will contribute to: lowering mortgage rates, reviving devastated housing markets, and starting new loans.

Investors will receive a $6 billion portion of the payout, according to AP sources, and $4 billion of that will be to settle the claim that JPMorgan misrepresented the mortgages to government-sponsored entities Freddie Mac, and Fannie Mae. The New York Times reports that $7 billion of the settlement is going to investors with the largest slice reserved for the Federal Housing Finance Agency, the overseer of Freddie and Fannie.

Former Securities and Exchange Commission lawyer, Jacob Frenkel, told Bloomberg the settlements won’t be an occasion to celebrate the end of the bank’s legal drama. “It’s good they’re getting this done, but it’s a fairly narrow band of cases they are settling,” Frenkel said, “There are still other open investigations that this doesn’t address, and those will run their course.”

JPMorgan has seen profits erode as the bank pays its legal tab. In the bank’s third-quarter results, increases in deposits, investments, and credit card sales compared to the previous year could not prevent a $0.4 billion loss for the quarter. In 2012, the bank earned $21.3 billion in net income on revenue. On November 15, JPMorgan announced a settlement with twenty-one institutional investors for $4.5 billion.

Michael Bresnick served in the Obama administration as the executive director of the Financial Fraud Enforcement Task Force. Speaking to BloombergBresnick explained why this case represents the beginning of the federal government’s investigations. “These cases take time, and you’ve got to put in the time, the energy, and the resources and put the work in, and we’re starting to see those results now.”

On November 18, Deputy Attorney General, James Cole, spoke to the American Bankers Association. Cole said “banking and financial services play a vital role in our country,” but the sector “is also susceptible to abuse.” DOJ expects $17 billion to be paid in settlements this year, and “that number will increase, as we are more committed than ever to investigating crimes committed by and within financial institutions, and to hold the perpetrators of those crimes accountable.”

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