JPMorgan Chase CEO Jamie Dimon, head of the largest bank in the United States, has seen his reputation, and that of the bank, take a hit as a result of the trading loss originally pegged at $2 billion US in early May. J. Scott Applewhite/Associated Press
U.S. investment bank JPMorgan is putting the finishing touches on a settlement that would see the bank pay $13 billion to make numerous government complaints into their subprime mortgage business go away, The Associated Press reports.
Sources familiar with the negotiations told the news agency the deal could be finalized as early as Tuesday.
If the price tag ends up being $13 billion, it would be the largest settlement between the U.S. government and a corporation in American history. The previous was record was $4 billion, what BP agreed to pay to settle the gulf oil spill in January.
The $13-billion figure is also more than half of the $21 billion that the bank earned in profits last year. Last quarter, the bank posted a rare quarterly loss — of $9 billion — under the stewardship of CEO Jamie Dimon, because of the uncertainty related to the settlement.
The fine would end years of negotiations to find a suitable reimbursement for the amount investors, homeowners and taxpayers who suffered in the years following the recession, when JPMorgan and other banks sold billions of low-quality mortgages to unqualified buyers, which collapsed the housing market.
Dimon contends most of the troubled loans weren't originated at the bank, and were instead inherited when JPMorgan acquired Bear Stearns Cos. and Washington Mutual Inc. in 2008.
Deputy Attorney General James Cole told the American Bankers Association that too many supervisors incentivized excessive risk taking, knowing that risky products "could be unloaded down the road … leaving someone else to deal with the consequences."
According to AP, $6 billion of the settlement would go to investors, while $4 billion would go directly to homeowners, by reducing principals, lowering rates and originating new loans. Some of that $4 billion would be earmarked to helping foreclosed homeowners in distressed property areas such as Detroit, AP says. The remainder will be a fine, kept by the government.
The settlement would also end any civil financial penalties, but would not prevent the U.S. government from going ahead with criminal charges.