JPMorgan record settlement $13bn

A JPMorgan record settlement of $13 billion with the US Department of Justice has been agreed regarding serious mispresentations to the public about several residential mortgage backed securities (RMBS) transactions. JPMorgan Chase added that it had not broken US laws.

The JPMorgan record settlement goes down in history as the largest ever made by a corporation to US authorities. It dwarfs BP’s $4.5bn settlement tied to its Deepwater Horizon disaster and GlaxoSmithKline’s $3bn for illegally marketing drugs and not releasing safety data to the FDA (Food and Drug Administration).

Jamie Dimon, Chairman and CEO of JPMorgan, said in a statement:

“We are pleased to have concluded this extensive agreement with the President’s RMBS Working Group and to have resolved the civil claims of the Department of Justice and others. Today’s settlement covers a very significant portion of legacy mortgage-backed securities-related issues for JPMorgan Chase, as well as Bear Stearns and Washington Mutual.”

”The size and scope of this resolution should send a clear signal that the Justice Department’s financial fraud investigations are far from over. No firm, no matter how profitable, is above the law, and the passage of time is no shield from accountability.”

Approximately $4 billion will go to homeowners (borrowers) who were affected by JPMorgan’s practices, the aim being to keep people in their homes.

Seven billion (tax-deductible) will go to settle federal and state civil claims related to misleading mortgage securities JPMorgan sold. Investors who lost money will receive some of that money.

The other $2bn (not tax-deductible) is a fine which will be paid to the US government.

Attorney General, Eric Holder, said in a statement:

“Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown. JPMorgan was not the only financial institution during this period to knowingly bundle toxic loans and sell them to unsuspecting investors, but that is no excuse for the firm’s behavior.”

JPMorgan record settlement, but troubles not yet over

The $13bn settlement concludes the civil investigation, but a criminal investigation by the US Justice Department is still underway.

JPMorgan’s role in the Madoff Ponzi scheme, a multi-billion dollar scam where it was the convict’s main banker, is one of several legal issues the company is still facing.

Other issues include JPMorgan’s hiring practices in China and allegations that it manipulated the energy market.

Can JPMorgan afford $13 billion?

This JPMorgan record settlement has been viewed by most investors as a positive development for the bank, which had set aside provisions that wiped out Q3 earnings to cover legal claims.

According to JPMorgan, the bank is “fully reserved” for the $13bn settlement. Last month the bank announced that it had $23 billion in reserves to cover litigation, i.e. there are still $10 billion left.