JPMorgan Chase & Co. (JPM) has reached a tentative resolution of all civil mortgage-bond related matters with the Department of Justice under which it will pay a record $13 billion, a person familiar with settlement talks said.
The amount, which increased to $13 billion from $11 billion during negotiations last night, includes a $4 billion accord with the Federal Housing Finance Agency over the bank's sale of mortgage-backed securities, the person said.
The pact, which isn't yet final, doesn't include a release of potential criminal liability for the bank, the person said, at the insistence of U.S. Attorney General Eric Holder, who told JPMorgan Chief Executive Officer Jamie Dimon during talks that such a release wouldn't be forthcoming as part of any deal.
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, said the person, who requested anonymity because the matter isn't public. The deal also includes pending inquiries by New York Attorney General Eric Schneiderman, the person said.
JPMorgan is the target of investigations in the U.S. and abroad, including probes of its hiring practices in Asia. The bank has tapped $8 billion of $28 billion in reserves set aside since 2010 to cover its legal costs.
The outline of the tentative accord was reached last night during a telephone call between Holder, Dimon, JPMorgan General Counsel Stephen Cutler and Associate U.S. Attorney General Tony West, said the person. The settlement's statement of facts is still being negotiated.
Joe Evangelisti, a spokesman for the New York-based bank, and Brian Fallon, a spokesman for the Justice Department, declined to comment.
The FHFA sued JPMorgan and 17 other banks over faulty mortgage bonds two years ago in an effort to recoup some of the losses taxpayers were forced to cover when the government took control of the failing mortgage finance companies in 2008.
Fannie Mae (FNMA) and Freddie Mac, which are regulated by FHFA, have taken $187.5 billion in federal aid since then.
JPMorgan remains the subject of what another person familiar with the matter said was a criminal probe by U.S. prosecutors in California.
The increasing number of lawsuits and regulatory probes led JPMorgan to take a $7.2 billion charge in the third quarter, resulting in its first loss under Dimon, the bank said when it reported earnings Oct. 11.
"This is very painful for the company," Dimon told analysts on a call that day.
The company has so far paid more than $1 billion to five different regulators to settle allegations involving a $6.2 billion trading loss last year.
Dimon spent two hours at the Justice Department in Washington on Sept. 26 to discuss a possible global settlement with Holder, a person familiar with the talks said at the time. Others involved in the talks of a global deal included the Department of Housing and Urban Development and Schneiderman, who is co-chairman of a federal and state working group on residential mortgage-backed securities, which negotiated the civil-mortgage settlement with JPMorgan.
The FHFA accused JPMorgan and its affiliates of making false statements and omitting material facts in selling $33 billion in mortgage bonds to Fannie Mae and Freddie Mac from Sept. 7, 2005, through Sept. 19, 2007.
The regulator said executives at JPMorgan, Washington Mutual and Bear Stearns Cos., which were acquired by JPMorgan in 2008, knowingly misrepresented the quality of the loans underlying the bonds, among other things, according to the lawsuit filed in federal court in Manhattan.
UBS AG (UBSN), Switzerland's largest bank, agreed to pay $885 million last month to settle claims it misrepresented the quality of the loans backing $4.5 billion in residential mortgage bonds it sponsored and $1.8 billion of third-party mortgage bonds sold to Fannie Mae and Freddie Mac. UBS was the third bank to reach an agreement with FHFA.
Citigroup Inc. and General Electric Co. (GE) both paid undisclosed amounts to settle the regulator's claims.
The case is Federal Housing Finance Agency v. JPMorgan Chase & Co., 11-06188, U.S. District Court Southern District of New York (Manhattan).