By Karen Freifeld
NEW YORK Nov 15 JPMorgan Chase & Co
said on Friday it agreed to pay $4.5 billion to settle claims by
investors who lost money on mortgage-backed securities before
the collapse of the U.S. housing market.
The bank reached the agreement with 21 institutional
investors in 330 residential mortgage-backed securities trusts
issued by JPMorgan and Bear Stearns, which it took over during
the financial crisis, according to the bank and lawyers for the
The deal still has to be accepted by seven trustees
overseeing the securities holdings, the parties said.
The settlement does not include trusts issued by Washington
Mutual, which JPMorgan also acquired.
The deal is separate from the preliminary $13 billion
settlement JPMorgan has reached with the U.S. government that
would resolve a raft of actions over residential mortgage-backed
"This settlement is another important step in J.P. Morgan's
efforts to resolve legacy related RMBS matters," the bank said
in a statement.
The bank said it believes reserves it has built will cover
the expense of "this and any remaining" mortgage securities
The 21 investors include BlackRock Inc, Metlife Inc
, Allianz SE's Pacific Investment Management Company
, the TCW Group and Bayerische Landesbank.
Under the agreement, the trustees have until Jan. 15 to
accept the offer, which may be extended for another 60 days,
according to JPMorgan and Gibbs & Bruns, the Houston law firm
that represented the institutional investors.
Kathy Patrick of Gibbs & Bruns called the deal "an important
milestone" in a three-year effort by the group of 21
The seven trustees over the bonds include Bank of New York
Mellon Corp. Kevin Heine, a spokesman for the Bank of New
York Mellon, said the bank would "evaluate the proposed
settlement along with the other trustees."
If accepted, the deal would resolve claims that JPMorgan and
Bear Stearns misrepresented the mortgages underlying the
securities, JPMorgan said.
The settlement also would resolve servicing claims on all
trusts issued by the bank and Bear Stearns between 2005 and
JPMorgan is the third bank to strike a deal with investors
over shoddy mortgage-backed securities issued in the run-up to
the financial crisis.
Bank of America Corp agreed to a $8.5 billion settlement in
June 2011 with 22 institutional investors. That deal is still
awaiting court approval.
In 2012, bondholders in trusts issued by Ally Financial's
bankrupt former mortgage lending arm, Residential Capital, won
an agreement to bring an $8.7 billion claim, although that was
later reduced to $7.3 billion.
Gibbs & Bruns has represented investors in all three
settlements. In 2011, the law firm said its investor clients had
instructed trustees overseeing $95 billion of securities issued
by JPMorgan, Bear Stearns and Washington Mutual to investigate
whether the bonds were backed by ineligible mortgages.
Washington Mutual is not included in the deal because of
litigation between the Federal Deposit Insurance Corp and
JPMorgan over who is responsible for losses at the former
mortgage lender, according to a person familiar with the matter.
The exclusion explains the difference between the amount of
the announced deal and reports last month that JPMorgan was near
an agreement with the investors for close to $6 billion, said
another person familiar with the negotiations.
The separate tentative $13 billion settlement between
JPMorgan and the U.S. government also has been complicated by
that dispute, according to other sources.
JPMorgan CEO Jamie Dimon has vowed to resolve legal and
regulatory issues that have been weighing heavily on the company
since May 2012.
In October, JPMorgan reported its first quarterly loss under
Dimon as it recorded more than $9 billion of expenses to build
its litigation reserves.
JPMorgan is the biggest U.S. bank by assets.