JPMorgan Chase & Co. (JPM)’s proposed terms to settle state and federal probes of the bank’s mortgage-bond sales were rejected by the Department of Justice this week, said two people familiar with the negotiations.
The Justice Department told JPMorgan it won’t agree to language the firm submitted Oct. 27, said the people, who asked not to be named because the talks are private. The government would bar JPMorgan from trying to recover part of the costs from the Federal Deposit Insurance Corp. and opposed the company’s bid to avoid criminal liability in cases that don’t involve residential mortgage-backed securities, one person said.
JPMorgan, led by Chief Executive Officer Jamie Dimon, is trying to complete a $13 billion settlement outlined in talks earlier this month. Part of the deal was finished with the Federal Housing Finance Agency last week, as the New York-based bank agreed to pay $4 billion to settle claims it sold faulty mortgage bonds to Fannie Mae and Freddie Mac. (FMCC)
The Justice Department and JPMorgan, the biggest U.S. bank, also differ on whether to include an additional $1.1 billion payment in the FHFA pact as part of the total settlement, one person said.
Shares of JPMorgan advanced 5 cents to $52.73 in New York. Brian Marchiony, a company spokesman, declined to comment on the talks. Dow Jones reported elements of the disagreements yesterday.
Attorney General Eric Holder told the bank the department wouldn’t let JPMorgan seek reimbursement from the FDIC after resolving liability stemming from the failure of Washington Mutual Inc., the person said. Washington Mutual, which ranked among the biggest subprime mortgage lenders, collapsed during the 2008 credit crisis and JPMorgan acquired the Seattle-based company’s banking assets.
JPMorgan has said the FDIC agreed to cover some of the resulting losses, a claim the agency rejects. The bank estimates its liabilities from WaMu at about $4 billion, the person said.
While discussions remain open, an agreement may not be reached this week, one person said.
Last week’s deal with the FHFA included $1.1 billion to settle claims that the lender sold Fannie Mae and Freddie Mac defective mortgages that they packaged into their own securities. JPMorgan contends that amount is part of the broader $13 billion pact, one person said on the day that agreement was announced, while the government believes it would be in addition to the $13 billion, another person said.
The FHFA deal is “an important step towards a broader resolution of the firm’s MBS-related matters with governmental entities,” the bank said in a statement last week.
In contrast to the Justice Department’s position, the FHFA agreement allows JPMorgan to seek reimbursement from the FDIC-managed Washington Mutual receivership for FHFA claims stemming from Washington Mutual.
JPMorgan still faces investigations into its hiring practices in Asia, its energy-trading business and financial services provided to Ponzi scheme operator Bernard Madoff.
Dimon, 57, was personally involved in negotiations with the Justice Department last month and visited Holder in Washington to discuss the settlement, a person familiar with the meeting said at the time. Dimon discussed broad outlines of the deal in a phone call with Holder on Oct. 18, one person said.
The FHFA case is Federal Housing Finance Agency v. JPMorgan Chase & Co., 11-06188, U.S. District Court, Southern District of New York (Manhattan).
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