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JPMorgan Close to Record $13 Billion Settlement

JPMorgan Chase is close to settling a $13 billion deal with the government over the company’s mortgage practices leading up to the financial crisis. The proposed settlement would be the largest amount of damages ever paid by a financial firm.

As part of the deal, JPMorgan will not have to admit guilt–known as the ‘no admit no deny policy,’ it’s a common, unfortunate trend when big companies settle cases with the government.

The agreement, which increased from a proposed $11 billion last month, will put to rest a growing number of civil suits against the bank, mostly concerning their sales of mortgage bonds.

According to Bloomberg, Attorney General Eric Holder said the deal does not release JPMorgan from potential criminal liability. Still, the Department of Justice has given no indications they intend to pursue prosecution. A total of zero Wall Street CEOs are in jail for their roles in the financial crisis.

As The New York TimesDealBook points out, some on Wall Street think the fine is too high and JPMorgan is “a victim of government zealotry.” In reality, only $2 to 3 billion will serve as punitive fines.

As details emerge, Wall Street’s fears of a largely punitive settlement may not add up.

While the overall sum is large, the money will flow to different parties. The largest sum, more than $6 billion, will serve as compensation for investors like pension funds that suffered losses from mortgage securities sold by JPMorgan, Bear Stearns and Washington Mutual, people briefed on the settlement talks said.

Another $4 billion will take the form of relief for struggling homeowners in cities like Detroit. The payout will serve as penance for the bank’s general mortgage practices, and does not stem from any particular mortgage securities or institution, according to one of the people briefed on the talks.

The tentative $13 billion settlement is a little more than half of JPMorgan’s $21.3 billion profit last year. Bloomberg predicts that much of the deal, like relief to home owners, will be tax deductible.

The Project On Government Oversight reported that in September, the company agreed to pay $200 million to settle charges from the Securities and Exchange Commission (SEC) over a lack of internal oversight.

By: Avery Kleinman
Beth Daley Impact Fellow, POGO

Avery Kleinman At the time of publication Avery Kleinman was the Beth Daley Impact Fellow for the Project On Government Oversight.

Topics: Financial Sector

Related Content: Financial Oversight

Authors: Avery Kleinman

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