JP Morgan Chase in $5-bn settlement with US regulator
26 October 2013
JP Morgan Chase has secured important concessions in a $13-billion settlement over its mortgage practices lawsuit, which could ultimately reduce the lender's financial burden and possibly saddle the government itself with some costs (See: JPMorgan in tentative $13-bn settlement with US regulators).
The concessions were announced yesterday, in an agreement with one of the federal regulators suing JP Morgan, the nation's largest bank.
The regulator, the Federal Housing Finance Agency's deal comes ahead of a broader settlement that the justice department and other authorities negotiating with the bank.
The housing agency, which exercises oversight on Fannie Mae and Freddie Mac, extracted a $5.1 billion payout yesterday.
However, unlike other regulators involved in similar actions with the bank, it did not require JP Morgan to admit wrongdoing.
Also in a provision bundled with the settlement, the agency effectively allowed JP Morgan to try later to recoup about $1 billion from another federal regulator, the Federal Deposit Insurance Corporation.
According to commentators, the results revealed that, even as JP Morgan was under pressure from the government, the bank sought to contain the fallout - and was making progress on some fronts.
In a statement, JPMorgan termed the deal ''an important step towards a broader resolution'' with the justice department as also other government authorities.
Meanwhile, a separate settlement with the US justice department is expected to follow soon.
"This is a significant step to address outstanding mortgage-related issues," the FHFA said in a statement.
The deal comes as the biggest settlement ever by a US bank.
JP Morgan said in a statement that the settlement resolved the biggest case against the firm relating to mortgage-backed securities.
The bank added that the agreement related to "approximately $33.8 billion of securities purchased by Fannie Mae and Freddie Mac from JP Morgan, Bear Stearns and Washington Mutual" from 2005 - 2007.
JP Morgan purchased Bear Stearns and Washington Mutual at the height of the financial crisis of 2008-2009, and has been trying to argue it should not be punished for mistakes made before those deals.
Under the agreement with the FHFA, the bank would pay $4 billion to Fannie Mae and Freddie Mac for settlement of claims that it violated US securities law.
It would pay the agencies an additional $1.1 billion for incorrect representation of the quality of single-family mortgages.