By Aruna Viswanatha
WASHINGTON Oct 19 JPMorgan Chase & Co
has reached a tentative $13 billion agreement with the U.S.
Justice Department to settle government agency investigations
into bad mortgage loans the bank sold to investors before the
financial crisis, a source said on Saturday.
The tentative deal does not release the bank from criminal
liability for some of the mortgages it packaged into bonds and
sold to investors, a factor that had been a major sticking point
in the discussions, the source said.
As part of the deal, the bank will likely cooperate in
criminal inquiries into certain individuals involved in the
conduct at issue, the source, who declined to be identified,
Officials at JPMorgan and the Justice Department declined
Another source close to the discussions characterized a deal
as likely, but cautioned that parts of the agreement are still
being hammered out, and the settlement could conceivably fall
The record settlement could help resolve many of the legal
troubles the New York bank is facing. Earlier this month
JPMorgan disclosed it had stockpiled $23 billion in reserves for
settlements and other legal expenses to help cover the myriad
investigations into its conduct before and after the financial
The deal is being hammered out by some of the most senior
officials at the Department of Justice and the largest U.S.
bank. Attorney General Eric Holder and JPMorgan Chief Executive
Jamie Dimon spoke on the phone on Friday night to finalize the
broad outlines of the broad deal, the first source said.
The bank's general counsel Stephen Cutler and Associate
Attorney General Tony West are negotiating a statement of facts
that will be part of a final agreement, the source said.
Long considered one of the best-managed banks, JPMorgan has
stumbled in recent years, with run-ins with multiple federal
regulators as well as authorities in several states and foreign
countries over issues ranging from multibillion-dollar trading
losses and poor risk controls to probes into whether it
manipulated a power market.
In September, as the Justice Department prepared to sue the
bank over mortgage securities that the bank sold in the run-up
to the financial crisis, JPMorgan tried to reach a broader
settlement with DOJ and other federal and state agencies to
resolve claims over its mortgage-related liabilities stemming
from the bust in house prices.
Dimon went to Washington to meet with Holder on Sept. 25,
and discussed an $11 billion settlement at that point.
Some of the problems relate to mortgage bank Washington
Mutual and investment bank Bear Stearns, two failing firms that
JPMorgan took over in 2008.
The bank and the Justice Department have been discussing a
broad deal that would resolve not only the inquiry into mortgage
bonds it sold to investors between 2005 to 2007 that were backed
by subprime and other risky residential mortgages, but also
similar lawsuits from the Federal Housing Finance Agency, the
National Credit Union Administration, the state of New York and
The broader settlement is a product of a government working
group created nearly two years ago to investigate misconduct in
the residential mortgage-backed securities market that
contributed to the financial crisis. Officials from the Justice
Department, the New York Attorney General and others helped to
lead the group.
Reuters reported late Friday that JPMorgan and FHFA had
reached a tentative $4 billion deal. That agreement is expected
to be part of the larger $13 billion settlement.(Full Story)