JPMorgan Chase & Co. (JPM) reached a tentative settlement for about $4 billion with the Federal Housing Finance Agency over the bank’s sale of mortgage-backed securities, according to a person familiar with the matter.
The possible accord with the agency, which originally asked for $6 billion from the firm, could be included in a broader deal the bank is seeking with federal and state authorities, according to a different person briefed on the settlement talks. If JPMorgan can’t reach a global settlement on pending mortgage bond matters, it may instead seek to settle claims such as the FHFA’s individually, said the person. Both people asked not to be named because the talks are private.
JPMorgan is grappling with investigations in the U.S. and abroad, including probes into a trading loss last year of more than $6.2 billion and its hiring practices in Asia. The bank has tapped $8 billion of $28 billion in reserves set aside since 2010 to cover its legal costs.
The New York-based bank has been discussing a potential $11 billion deal with state and federal authorities that would settle mortgage-related claims and investigations, including a criminal probe by U.S. prosecutors in California, a person with knowledge of the talks said last month. The FHFA’s lawsuit was the furthest along in negotiations, the person familiar with the settlement talks said.
The FHFA sued JPMorgan and 17 other banks over faulty mortgage bonds two years ago in an effort to recoup some of the losses taxpayers were forced to cover when the government took control of the failing mortgage finance companies in 2008. Fannie Mae (FNMA) and Freddie Mac, which are regulated by FHFA, have taken $187.5 billion in federal aid since then.
Brian Marchiony, a spokesman for the New York-based company, and Denise Dunckel at the FHFA declined to comment on the bank’s talks with the regulator.
The tentative agreement was reported earlier by the Wall Street Journal.
The mounting litigation and regulatory probes led JPMorgan to take a $7.2 billion charge in the third quarter, its first loss under Chief Executive Officer Jamie Dimon, the bank said when it reported earnings Oct. 11.
“This is very painful for the company,” Dimon told analysts on a call that day. “As we settle, as we negotiate, remember there are multiple agencies involved in every case now.”
The company has so far paid more than $1 billion to five different regulators to settle allegations involving the trading loss last year.
Dimon spent two hours at the Justice Department in Washington on Sept. 26 to personally discuss a possible global settlement with Attorney General Eric Holder, a person familiar the meeting said last month.
Others involved in the talks of a global deal include the the Department of Housing and Urban Development and New York Attorney General Eric Schneiderman, who is co-chairman of a federal and state working group on residential mortgage-backed securities.
The FHFA accused JPMorgan and its affiliates of making false statements and omitting material facts in selling $33 billion in mortgage bonds to Fannie Mae and Freddie Mac from Sept. 7, 2005, through Sept. 19, 2007. The regulator said executives at JPMorgan, Washington Mutual and Bear Stearns Cos., which were acquired by JPMorgan in 2008, knowingly misrepresented the quality of the loans underlying the bonds, among other things, according to the lawsuit filed in federal court in Manhattan.
UBS AG (UBSN), Switzerland’s largest bank, agreed to pay $885 million last month to settle claims it misrepresented the quality of the loans backing $4.5 billion in residential mortgage bonds it sponsored and $1.8 billion of third-party mortgage bonds sold to Fannie Mae and Freddie Mac. UBS was the third bank to reach an agreement with FHFA.
Citigroup Inc. and General Electric Co. (GE) both paid undisclosed amounts to settle the regulator’s claims.
The case is Federal Housing Finance Agency v. JPMorgan Chase & Co., 11-06188, U.S. District Court Southern District of New York (Manhattan).