JPMorgan Chase

Financial giant JPMorgan agrees to pay US$5.1 billion to mortgage authority

Bank's settlement of claim it missold mortgage securities is likely to be the first of many

PUBLISHED : Sunday, 27 October, 2013, 6:22am
UPDATED : Monday, 13 June, 2016, 12:45pm

The US$5.1 billion that JPMorgan Chase has agreed to pay hardly ends its legal troubles over claims it misled buyers about mortgage securities it sold.

It's merely a down payment.

The financial services giant still faces heavy monetary burdens. The bank has set aside US$23 billion to cover potential legal costs - and it may need it all.

On Friday, JPMorgan called its latest settlement an "important step" towards resolving allegations over mortgage-backed securities it sold.

The US$5.1 billion would resolve federal claims that it misled mortgage firms Fannie Mae and Freddie Mac about risky home loans and securities they bought before the US housing market collapsed.

The US Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, said it struck a separate US$5.1 billion deal, rather than wait for the Justice Department to finalise its share of a tentative US$13 billion deal with the bank.

Until now, the FHFA had agreed to bundle its lawsuit against the bank into a global settlement that federal prosecutors have been working on for months. The back and forth proved too much for the housing regulator, which decided to take matters into its own hands, said a person familiar with the deal.

But unlike other regulators pursuing the bank, it did not require JPMorgan to admit wrongdoing. And in a provision buried in the settlement, the agency effectively allows JPMorgan to try later to recoup about US$1 billion from another federal regulator: the Federal Deposit Insurance Corp.

The results show that, even as JPMorgan is facing an onslaught from the government, the bank is seeking to contain the fallout - and is succeeding on some fronts.

The bank still faces local, state and federal investigations into its sale of the mortgage-backed securities. Most of the trouble stems from JPMorgan's acquisition of Bear Stearns in March 2008.

In September, JPMorgan agreed to pay US$920 million and admit that it failed to oversee trading that led to a US$6 billion loss last year in its London operation. That combined amount, in settlements with three regulators in the US and one in Britain, is one of the largest fines ever levied against a financial institution.

If that weren't enough, JPMorgan is tied up in litigation over the Bernard Madoff Ponzi scheme. JPMorgan has said it's responding to investigations by the Justice Department and other regulators. The bank hasn't given details. But it has previously faced accusations that it and other banks ignored signs that Madoff was a con artist.

Associated Press, The New York Times, Washington Post