JPMorgan, DOJ near $13B settlement

Doug Stanglin and Kevin McCoy | USA TODAY

JP Morgan Chase, the largest U.S. bank, has reached a tentative $13 billion deal with the Justice Department in a settlement of a wide-range of issues related to the sale of bad mortgages, according to several media reports.

Reports by the Associated Press, TheWall Street Journal and Bloomberg News, cited unnamed sources with knowledge of the negotiations, indicating that the record-size deal, if finalized, would not release the bank from potential criminal liability.

The Journal quoted "a person familiar with the decision" Saturday as saying the settlement would cover outstanding investigations of the bank's residential mortgage-backed securities business.

Bloomberg.com carries a similar report, also quoting a person familiar with the settlement negotiations, and calls the deal a "tentative resolution of all civil mortgage-bond related matters.

Bloomberg notes, however, that the tentative pact does not include a release of potential criminal liability. The report quotes the unidentified source as saying the proposed accord will probably require the bank to cooperate in criminal investigations of individuals tied to wrongdoing associated with the bank's mortgage practices.

A breakthrough in long-running talks came Friday night, after U.S. Attorney General Eric Holder and JPMorgan CEO Jamie Dimon spoke by phone and the bank agreed to leave criminal liability out of the deal, a source familiar with the talks tells Reuters.

Bloomberg reports that the deal would include a tentative $4 billion settlement with the Federal Housing Finance Agency over the bank's sale of mortgage-backed securities.

The tentative agreement would include $9 billion in fines and $4 billion in relief for struggling homeowners, The New York Times reported, citing people briefed on the talks.

New York Attorney General Eric Schneiderman's office, which is involved in the settlement negotiations, declined to comment Saturday.

On Friday, The Journal separately had reported that the bank had reached such a settlement with the FHFA over claims that it sold bad mortgages to government agencies ahead of the financial crisis.

The housing finance agency has accused JPMorgan Chase of misleading Fannie Mae and Freddie Mac about the quality of the mortgages it sold during the housing boom of the late-2000s.

Dimon personally met with Holder at a September meeting in Washington to negotiate a global settlement of the bank's sales of residential mortgage-backed securities and suspect mortgages. Some of the transactions involved Bear Stearns before JPMorgan acquired the investment bank in 2008.

The reported agreement comes in the wake of the bank's admission of wrongdoing and agreement to pay more than $1 billion in settlements with five regulatory agencies for its now-notorious "London whale" trading debacle.

That case focused on an early 2012 episode involving London-based JPMorgan brokers who amassed large and risky investment positions in an effort to avoid massive loses in a credit portfolio. The bank violated federal securities laws by failing to keep watch over the traders' activities and withholding key information from regulators. The trading ultimately resulted in an estimated $6.2 billion in losses.

JPMorgan has also paid billions of dollars in other settlements in recent years, including $1.2 billion in Aug. 2012 as its share of a class-action lawsuit that alleged it was one of several banks that conspired to set the price of credit card and debit card interchange fees.

In its most recent earnings report, JPMorgan's said its total reserve for legal issues is now $23 billion. Adding in the $5.7 billion in possible future expenses, and the $8 billion the bank has already paid, and its total potential exposure to the 2008 financial crisis and other issues climbs to about $36.7 billion, according to the bank.

By comparison, JPMorgan earned about $21.3 billion in 2012.