In an agreement settling many U.S. claims over its sale of troubled mortgages, JPMorgan Chase will pay a record $13 billion, in a deal announced by the Justice Department Tuesday. The plan includes a $4 billion payment for consumer relief, along with a payment to investors of more than $6 billion and a large fine.
The latest updates on this story are at the bottom of this post. We've also added a few key points to the main post.
"The settlement does not absolve JPMorgan or its employees from facing any possible criminal charges," the Justice Department says.
At $13 billion, the JPMorgan settlement is a record amount paid by one corporation to the federal government. The figure is nearly triple the $4.5 billion in fines and penalties paid by BP over the 2010 Gulf of Mexico oil spill (the BP figure doesn't include restitution and other claims made by individuals and businesses, a process that is ongoing).
More than half of the record settlement amount will be tax-deductible, the banking giant said in a conference call Tuesday.
"It's our understanding that the $2 billion penalty will not be tax-deductible," JPMorgan Chief Financial Officer Marianne Lake said, "but that the remaining $7 billion of compensatory payments will be deductible for tax purposes."
The historic deal has been negotiated for months, as JPMorgan and government officials looked for a satisfactory end to a string of lawsuits and investigations stemming from the financial crisis that began in 2007. The Department of Housing and Urban Development also took part in the talks, as did several states.
In announcing the deal, officials detailed how the money would be divided. Part of the $4 billion for consumers would go toward helping some homeowners whose mortgages are handled by JPMorgan. In a rare step, another share would be used to reduce blight in neighborhoods peppered by rundown and abandoned homes.
The pact requires JPMorgan to hire an independent auditor to ensure it follows those guidelines. The banking giant said Tuesday that it expects to fulfill its obligations by the end of 2017.
The settlement stems from "alleged bad behavior relating to mortgages and mortgage-backed bonds," as Marketplace reports. "These were pumped into the financial markets before the housing bubble burst — both by J.P. Morgan Chase, and by Washington Mutual, the failing savings-and-loan that J.P. Morgan bought with government encouragement in the midst of the financial crisis."
Recalling those events, the Federal Housing Finance Agency's acting inspector general, Michael P. Stephens, says in the official news release, "JPMorgan and the banks it bought securitized billions of dollars of defective mortgages. Investors, including Fannie Mae and Freddie Mac, suffered enormous losses by purchasing [residential mortgage-backed securities] from JPMorgan, Washington Mutual and Bear Stearns not knowing about those defects.
JPMorgan remains a potential target of several legal actions. It is still is being investigated by the U.S. Attorney's office in Sacramento. Private investors and European banks may also file claims against the company.
"Also, U.S. officials can pursue charges against some of the individuals who were involved in mortgage fraud, and they've said they might do that," NPR's Jim Zarroli told Renee Montagne on Tuesday's Morning Edition.
Update at 3:45 p.m. ET: Details On The Payout
The Justice Department has issued this breakdown of the $9 billion in the settlement that's not tied to consumer aid:
- $2 billion - civil penalty to settle the Justice Department claims under the Financial Institutions Reform, Recovery, and Enforcement Act
- $1.4 billion - to settle federal and state securities claims by the National Credit Union Administration
- $515.4 million - to settle federal and state securities claims by the Federal Deposit Insurance Corporation
- $4 billion - to settle federal and state claims by the Federal Housing Finance Agency
- $298.9 million - to settle claims by the State of California
- $19.7 million - to settle claims by the State of Delaware
- $100 million - to settle claims by the State of Illinois
- $34.4 million - to settle claims by the Commonwealth of Massachusetts
- $613.8 million - to settle claims by the State of New York
Update at 4:15 p.m. ET: JPMorgan Issues Statement
"We are pleased to have concluded this extensive agreement" with the government, JPMorgan Chairman and CEO Jamie Dimon says. "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 company says it "is fully reserved for this settlement," implying it has cash and other savings on hand to meet the requirements. JPMorgan will finish providing relief to borrowers by the end of 2017, the company says.
The company also said it is cooperating in an "ongoing criminal investigation by the Department of Justice."
Update at 4:45 p.m. ET: Money May Help 100,000 Borrowers
The $4 billion in relief for homeowners and borrowers "could benefit more than 100,000 borrowers," says HUD Secretary Shaun Donovan. He adds that the goal is to help "American consumers and communities hardest hit by the housing crisis."
Update at 5:05 p.m. ET: JPMorgan's Huge Litigation Reserve
"While we appreciate that the amounts in these settlements are significant," says JPMorgan Chief Financial Officer Marianne Lake, she adds that the bank has set far more money than $13 billion aside to deal with the fallout from the crisis.
The settlement represents only a fraction of JPMorgan's $23 billion litigation reserve fund, which it has called a hedge against future legal fees and judgments. That reserve was described in the bank's third-quarter corporate filings, as Lake said in a conference call held Tuesday afternoon.
Lake also clarified that the ongoing U.S. criminal investigation is into both its employees and the bank itself.
Two other interesting bits from the call:
JPMorgan "has agreed to waive indemnity rights against the FDIC and the [Washington Mutual] Receivership for any amount from the global settlement," the company says — but it has also "retained all other contractual rights protecting it from losses relating to conduct at WaMu before its failure."
And despite the bank agreeing to the settlement, "we did not admit to a violation of law," Dimon says.
Update at 5:15 p.m. ET: $7 billion Is Tax-Deductible
More than half of the record settlement amount will be tax-deductible, the banking giant said Tuesday.
"It's our understanding that the $2 billion penalty will not be tax-deductible," Lake said, "but that the remaining $7 billion of compensatory payments will be deductible for tax purposes."
She added that JPMorgan had planned for such an outcome in its most recent quarterly filings.