JPMorgan, US reach $13B deal on mortgage bonds

Associated Press

WASHINGTON

JPMorgan Chase & Co. has agreed to pay $13 billion in a landmark settlement after it acknowledged that it misled investors about the quality of risky mortgage-backed securities ahead of the 2008 financial crisis.

The settlement announcement Tuesday with the Department of Justice is the largest ever between the U.S. government and a corporation. It also included settlements with New York, California and other states.

JPMorgan and other banks sold securities that plunged in value when the housing market collapsed in 2006 and 2007. That triggered a financial crisis that pushed the economy into the worst recession since the 1930s.

The landmark deal, reached after months of negotiation, could serve as a template for similar settlements with other banks. As part of the deal, JPMorgan agreed to provide $4 billion in relief to homeowners affected by the loans. The bank also acknowledged that it misrepresented the quality of its securities to investors.

“Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown,” Attorney General Eric Holder said. “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 also will pay $2 billion in civil penalties to the federal government and about $1 billion to New York state. An additional $6 billion will go toward compensating investors.

In a statement, JPMorgan CEO Jamie Dimon said that the settlement covers a “very significant portion” of the bank’s troubled mortgage-backed securities, as well as those it inherited when it purchased Bear Stearns and Washington Mutual in 2008.

“We are pleased to have concluded this extensive agreement with the [government] and to have resolved the civil claims of the Department of Justice and others,” Dimon said in the statement.

The deal eclipses the record $4 billion levied on oil giant BP in January over the worst offshore oil spill in U.S. history.

Though the $13 billion that JPMorgan is paying is a staggering sum, it represents only about 40 percent of the bank’s $21.3 billion net income reported for 2012. And JPMorgan already has set aside $23 billion this year to cover the settlement and other legal costs related to its troubled mortgage businesses.