U.S. bank JPMorgan Chase may be close to a deal with U.S. authorities and will pay a record fine of $13 billion to settle investigations of practices into the mortgage-backed securities in the run up to the financial crisis.
JPMorgan Chase, the largest U.S. bank by assets, has reached a preliminary tentative deal of $13 billion with the Justice Department, according to Bloomberg. The settlement would represent the largest fine imposed by the U.S. government to a financial company.
In September, sources close to the talks stated that the fine was set to rise to $11 billion, suggesting that the U.S. authorities have gained ground in the negotiations in recent weeks. At the insistence of the U.S. Attorney General, Eric Holder, the agreement will not protect the bank from potential criminal charges, said a source close to the talks.
“To not get the waiver from criminal prosecution is not good. What we’re looking for in a settlement of this size is certainty from things like the criminal prosecution of a company. The Street wants certainty, said Nancy Bush, a bank analyst who founded NAB Research LLC in New Jersey.
Chief executive officer of JPMorgan, Jamie Dimon, discussed the deal Friday night in a meeting with the Attorney General. The settlement provides $4 billion in compensation to clients/investors and penalties of $9 billion in fines and “other payments” according to another source.
The $13 billion settlement concerns allegations of misrepresentation and omission of important aspects of the sale of mortgage bonds worth $33 billion from September 2005 to September 2007 to Fannie Mae and Freddie Mac, both public government-sponsored enterprises. The two financial institutions needed government aid totaling $187.5 billion to survive the collapse of the mortgage market.
Dimon seeks to end probes after legal expenses and funds set aside for litigations generated the first quarter loss recorded by the bank during his mandate as CEO, which began in 2005.
Bank recently announced that it has allocated $ 7.2 billion for expenses related to litigation with regulators. JPMorgan recorded in the third quarter a loss of $380 million. The bank spent from 2010 $8 billion of its $28 billion reserves set aside three years ago to cover the costs resulting from litigations.
JPMorgan agreed in September to pay $920 million to close investigations in the U.S. and UK related to the “London Whale” incident last spring that caused losses estimated at over $6 billion. The charges were related to deficiencies in the internal controls and supervision of traders. The amount was later supplemented by $100 million through an agreement with another U.S. regulatory agency that has not participated in the initial agreement.
UBS, the largest Swiss bank, agreed in September to pay a fine of $885 million to end an investigation into bank practices in the mortgage market in the U.S. in the period before the crisis. Citigroup and GE Capital division of General Electric have entered into similar agreements, but the amounts paid by the two banks have not been made public.
The largest six U.S. banks by assets, including JPMorgan and Bank of America have accumulated since the financial crisis of 2008 costs of more than $100 billion to cover disputes with authorities, customers and investors. The figures exceed the combined dividends paid by the six banks to shareholders in the last 5 years.
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