JPMorgan Chase

JP Morgan Chase in talks with regulators to settle US$11 billion

Payment involves mortgage bond violations at US bank and heavy losses on derivatives bets

PUBLISHED : Thursday, 26 September, 2013, 9:17am
UPDATED : Friday, 27 September, 2013, 1:38am

JP Morgan Chase is in talks with government officials in the United States to settle federal and state mortgage probes for US$11 billion, two people familiar with the matter said. The amount could include US$7 billion in cash and the other US$4 billion for consumers.

The talks were fluid and the US$11 billion amount could change, they said on Wednesday. The discussions include the Department of Justice, the Securities and Exchange Commission, the Department of Housing and Urban Development and the New York State Attorney General, the sources said.

JP Morgan is hoping to ease some of the pressure that regulators have been putting on the bank for months. The bank sidestepped the worst losses in the financial crisis, but it has looked less smart since May last year, when it said it was losing money on derivatives bets known as the "London whale" trades.

Those wagers ended up costing the bank more than US$6.2 billion before taxes, and probes into how the losses happened revealed that the bank's outspoken chief executive, Jamie Dimon, had a dysfunctional relationship with regulators.

But the London whale trades were just one of many missteps that have drawn regulatory scrutiny. The largest US bank has disclosed more than a dozen probes globally in recent filings, including an investigation from the justice department in California that preliminarily concluded that JP Morgan violated securities laws in selling subprime mortgage bonds.

Justice department lawyers from other parts of America and state authorities have been investigating JP Morgan's liability for mortgage securities sold by two other companies it acquired during the financial crisis, Bear Stearns and Washington Mutual.

The talks to reach a global settlement on the mortgage issues heated up this week after justice department officials in California told the bank that it was preparing to file a lawsuit.

The New York prosecutor's office is participating in the talks because it is part of a working group formed by President Barack Obama in January last year to investigate misconduct in mortgage securities that contributed to the financial crisis.

For the bank, the biggest in the US by assets, the sums being discussed are painful but manageable.

The company reported net income of US$21.3 billion last year and analysts have estimated that profits this year will be higher. At the end of June, the bank's net worth, as measured by the accounting value of its assets minus liabilities, was about US$209 billion.

The bank has spent about US$5 billion a year on legal costs in the past two years, largely because of the London whale debacle and mishandling of mortgage loans and mortgage securities.