The details need to be worked out we’re told, but it appears that JPMorgan Chase & Co. is on its way to settling a slew of civil claims related to the sale of faulty mortgage-backed securities.
The estimated price tag for the agreement, according to sources, is a record $13 billion. That amount is a far cry from the $3 billion or $4 billion that had been offered by JPMorgan CEO Jamie Dimon some weeks ago. If it becomes final, it reportedly will resolve not only federal securities fraud claims, but claims from states as well, including California.
The sources say the deal will provide $4 billion in relief to consumers who were hurt when the housing market bubble burst. It will not eliminate the threat to the bank or its employees of possible action from ongoing criminal investigations connected with the collapse. Indeed, the sources say it's expected that JPMorgan will be required under the deal to cooperate with those probes.
Word of the tentative agreement is generating a lot of reaction from many quarters. Representatives for mutual funds and pension groups, who often invest in mortgage-backed securities, have asked the government to make sure that JPMorgan doesn't shift the cost of that relief to them.
Meanwhile, analysts are offering views on why Dimon is willing to pay out as much as is being reported. One legal expert's observation is that had the cases gone to trial, and the government won, the facts of those cases could be reused in later litigation. By settling, they can't.
Others note that JPMorgan amounts to the first domino. They say other banks are in the crosshairs of federal regulators and that they will follow Dimon's lead and negotiate deals.
One other word of caution comes from a Wall Street Journal blog post. The author notes that a big part of JPMorgan's trouble came from having bought two struggling banks at the peak of the recent financial crisis. It made those buys at the urging of the government. So the question being asked is: If this is the payoff for helping, will big banks be willing to lend a hand in next time financial crisis strikes?
Source: Bloomberg.com, "Record JPMorgan Settlement Wouldn’t Deter Some Investors," Dawn Kopecki, Tom Schoenberg, Hugh Son and Dakin Campbell, Oct. 21, 2013