After months of tense negotiations, on Nov. 19, the Department of Justice (DOJ) announced that it has accepted a settlement with JPMorgan Chase that will close a number of investigations into the shaky mortgages the bank sold at the onset of the financial crisis. The $13 billion dollar figure is the largest amount that any corporation has ever paid to the federal government.
The deal will resolve federal and state civil claims that were the result of “the packaging, marketing, sale and issuance of residential mortgage-backed securities (RMBS) by JPMorgan, Bear Stearns and Washington Mutual prior to Jan. 1, 2009,” says the DOJ announcement.
In addition to the payout, JPMorgan has agreed to acknowledge that it misrepresented facts to the public surrounding RMBS. The admission of guilt was something that JPMorgan fought against during settlement talks.
$9 billion of the settlement will close claims from state and federal regulators. $2 billion of that will go to pay fines under the Financial Institutions Reform Recovery and Enforcement Act, and another $1.4 billion to settle claims by the National Credit Union Administration. Additional sums will also settle probes by the Federal Deposit Insurance Corporation and the Federal Housing Finance Agency, as well as state regulators in New York, Illinois, Delaware and California.
The remaining $4 billion of the settlement will go to relief for consumers affected by the actions of JPMorgan, Bear Stearns and Washington Mutual. More than half of the settlement will be tax deductible for the bank.
“Abuses in the mortgage-backed securities industry helped turn a crisis in the housing market into an international financial crisis,” said U.S. Attorney for the Eastern District of California Benjamin Wagner. “The impacts were staggering. JPMorgan sold securities knowing that many of the loans backing those certificates were toxic. Credit unions, banks and other investor victims across the country, including many in the Eastern District of California, continue to struggle with losses they suffered as a result.”
While this deal will end investigations for many civil cases, the mega bank still faces a number of criminal charges, which this settlement will not rectify. JPMorgan devoted a considerable amount of money to legal woes in 2013, and with this settlement the $23 billion buffer it squirreled away earlier this year for legal actions had just about evaporated.
For more background on the JPMorgan settlement, check out InsideCounsel’s coverage: