JPMorgan Chase

JPMorgan close to US$6b agreement with investors

Bank in talks with institutions to settle claims over shoddy mortgage-backed securities

PUBLISHED : Thursday, 24 October, 2013, 3:46am
UPDATED : Thursday, 24 October, 2013, 3:46am

JPMorgan Chase is nearing an agreement worth close to US$6 billion with a group of institutional investors to settle claims over shoddy mortgage-backed securities issued in the run-up to the financial crisis, a source familiar with the talks said.

Representatives of JPMorgan and the investors met on Friday to discuss the settlement, although the two sides had not yet agreed to formal terms, the source said.

The potential deal is separate from the preliminary US$13 billion settlement JPMorgan reached with the United States government that would resolve a raft of civil actions brought by several enforcement agencies.

The group of more than a dozen bondholders included BlackRock, Allianz's Pacific Investment Management and Neuberger Berman, the source said.

Kathy Patrick, a lawyer for the investors' group, did not respond to requests for comment. JPMorgan also was not available.

Patrick and her firm, Gibbs & Bruns, also represent a group of investors that struck an US$8.5 billion settlement with Bank of America in 2011 over similar allegations stemming from the bank's Countrywide unit.

A judge is weighing whether to approve that deal after American International Group and others objected, saying it was too small.

In 2011, the law firm said its investor clients had instructed trustees overseeing US$95 billion of securities issued by JPMorgan's affiliates during the housing boom to investigate whether the bonds were backed by ineligible mortgages.

The firm said its clients represented holders of more than 25 per cent of the voting rights in the securities, which included bonds from Bear Stearns and Washington Mutual, two companies that JPMorgan took over during the financial crisis.

JPMorgan reported a third-quarter loss earlier this month, the first under chief executive Jamie Dimon, after recording a US$7.2 billion after-tax expense to add money to its legal reserves in anticipation of settling the US government's mortgage claims.

The company had US$23 billion in its legal reserves at the end of the quarter.

Two sources familiar with the matter said JPMorgan's tentative US$13 billion settlement with the US government could end up costing the bank closer to US$9 billion after taxes because the majority of the deal was expected to be tax-deductible.

The settlement talks were reported earlier by the Financial Times and The Wall Street Journal.