JPMorgan Will Likely Pay the Government $13 Billion to Settle Civil Claims
According to sources, JPMorgan Chase (NYSE: JPM) is close to a $13 billion settlement agreement that would end U.S. probes of its mortgage-bond sales and would settle all civil disputes with the government but there’s still a looming issue that has investors and analysts concerned.
You read it right--$13 billion. That’s larger than a significant portion of companies in the S&P 500, the largest fine paid by a financial firm in a settlement with the U.S., and more than half of the bank’s $21.3 billion profit last year.
Only seven Dow companies earned more than 13 billion in 2012, according to Bloomberg.
The breakdown of the settlement includes $4 billion in relief for unspecified customers and $9 billion in payments and fines including $4 billion for the Federal Housing Finance Agency related to JPMorgan’s sale of mortgage-backed securities.
The FHFA sued JPMorgan along with 17 other banks in 2011 to recoup losses taxpayers had to cover when the government took control of some failing mortgage finance companies in 2008. The agency said that JPMorgan and its affiliates made false statements when it sold $33 billion in mortgage bonds to Fannie Mae and Freddie Mac from 2005-2007.
Wall Street hates unresolved issues. JPMorgan, like other large banks that made it through the financial crisis, has been the center of looming legal concerns for years causing investors to only cautiously bid up the stock.
This should be great news for investors but the settlement only covers civil disputes. Attorney General Eric Holder reportedly made it clear that the settlement would not release the bank from potential criminal liability leaving the possibility of continued legal action.
The bank’s bondholders are particularly concerned. The continued talk of an effort to ease the financial burdens of millions of homeowners would likely come at the expense of bondholders. This prompted an October 7 letter to Holder asking him to not allow banks to push the costs of these settlements to them.
But others argue that the Justice Department’s continued targeting of JPMorgan is a slap in the face to a company that did the government favors during the financial crisis. Much of the pending litigation stems from companies JPMorgan acquired at the request of the federal government when it was trying to prevent a systemic collapse of the financial system.
The agreement may be officially announced sometime this week, according to sources but it’s not likely to give investors much of a sense of relief. If it covered both civil and criminal litigation, this news would be much more bullish.
Disclosure: At the time of this writing, Tim Parker had no position in the above mentioned stocks.
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