Business

Thursday 24 July 2014

J.P. Morgan in $4bn deal with US housing agency

Aruna Viswanatha and David Henry

Published 19/10/2013|11:27

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A sign outside the headquarters of JP Morgan Chase & Co in New York, September 19, 2013. JPMorgan Chase & Co will pay $920 million in penalties in two countries to settle some of its potential liabilities from its "London Whale" derivatives trading losses last year, according to terms made public by regulators on Thursday.   REUTERS/Mike Segar   (UNITED STATES - Tags: BUSINESS LOGO CRIME LAW)
The $4bn figure was first reported on Friday by the Wall Street Journal

JPMorgan Chase & Co has reached a tentative $4bn deal with the U.S. Federal Housing Finance Agency to settle claims that the bank misled government-sponsored mortgage agencies about the quality of mortgages it sold them during the housing boom.

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JPMorgan and the FHFA, which is pursuing claims on behalf of finance agencies Fannie Mae and Freddie Mac, have agreed on the amount as a tentative part of a potential $11bn global settlement with government agencies, including the U.S. Department of Justice.

The $4bn figure was first reported on Friday by the Wall Street Journal.

A spokesman for JPMorgan declined to comment as did a spokeswoman for the FHFA.

The bank and the Department of Justice have discussed a broader deal under which JPMorgan would pay $7bn of cash and $4bn of consumer relief, to cover claims from the FHFA and other government agencies.

JPMorgan is seeking a single settlement to resolve all claims from federal and state agencies over its mortgage-related liabilities stemming from the bust in house prices.

Baring a complete breakdown in talks with the Department of Justice, a final deal between the bank and the FHFA is unlikely to happen outside of a broader pact, a person familiar with the matter told Reuters on Friday.

Earlier this week, others familiar with the talks said negotiations continued between the Justice Department and JPMorgan, with the bank circulating several proposals.

The FHFA has sued JPMorgan over mortgage loans totaling some $33bn. A $4bn deal would amount to about 12 cents on the dollar, less than the 20-cent rate under an earlier settlement by Switzerland-based bank UBS AG, said Josh Rosner, managing director of Graham Fisher & Co, a New York research consultancy.

At first glance, the tentative settlement looks like "a great deal for JPMorgan," Rosner said. He cautioned that it is unclear how comparable the deals are because the loans at issue have different origins and differences between the balances owed are not known.

CEO Jamie Dimon went to Washington to meet with U.S. Attorney General Eric Holder on September 26 to advance those discussions, but a deal has not been forthcoming.

Though Dimon is intent on getting the legal issues behind the bank, a sore spot with him and other JPMorgan directors has been how much the company will have to pay for bad mortgage deals done by Washington Mutual and Bear Stearns, two troubled institutions that JPMorgan took over during the financial crisis with the encouragement from bank regulators.

JPMorgan reported its first quarterly loss under Dimon on Friday as the company recorded a $7.2bn hit from litigation expenses largely to build its reserves to settle lawsuits over mortgages. The bank said all of its legal reserves now amount to $23 billion.

Reuters

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