By RTT News, October 19, 2013, 09:42:00 PM EDT
(RTTNews.com) - Financial services giant JPMorgan Chase & Co. ( JPM ) has reached a tentative $13 billion deal with the U.S. Department of Justice to settle outstanding probes of the company's mortgage-backed securities business, according to media reports on Saturday. If completed, the deal would represent the largest settlement the U.S. government has reached with a single company.
Attorney General Eric Holder, his deputy Tony West, JPMorgan Chief Executive Jamie Dimon and the bank's general counsel are said to have spoken on the phone Friday night to finalize the general terms of the broad deal.
However, the deal reached on Friday reportedly does not resolve criminal probes into the bank's conduct that could still be potentially costly, but will resolve civil allegations related to the mortgage securities.
JPMorgan disclosed in August 2013 that it is facing various criminal and civil investigations related to bad mortgage loans sold by the company to investors prior to the financial crisis. The mortgage-backed securities plunged in value along with housing prices in 2007 and 2008, triggering a crisis in the financial system.
At that time, JPMorgan noted that the U.S. Attorney's office in Sacramento concluded that the bank broke civil laws in connection with its subprime and Alt-A residential mortgage-backed security offerings during the period from 2005 to 2007. However, investigators were still examining whether the bank broke criminal laws.
According to media reports, the $13 billion settlement includes about $4 billion to resolve JP Morgan's outstanding issues with the Federal Housing Finance Agency or FHFA, while another $4 billion would be put into a consumer-relief fund. The balance amount of $5 billion will be used for resolving issues with the Justice Department and New York State.
A settlement on residential mortgage-backed securities would solve one of the bank's biggest legal problems. JPMorgan is under investigation by the Justice Department on matters ranging from energy trading to its hiring practices in China. The lender has incurred over $18 billion in legal expenses since 2008.
Earlier this week, JPMorgan agreed to pay $100 million to settle charges levelled by the Commodity Futures Trading Commission or CFTC related to the bank's handling of the 'London Whale' trading loss.
In September, JPMorgan said it agreed to pay about $920 million in penalties to U.S. and U.K. regulators for the massive derivative losses suffered in the so-called 'London Whale' trading. The settlements were made with the U.S. Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Federal Reserve, and the U.K.'sFinancial Conduct Authority.
These were part of efforts by JPMorgan CEO Dimon to resolve charges that lack of proper controls over bets made by two traders in the bank's London office led to losses of about $6 billion.
In early October, JPMorgan reported a loss for the third quarter, reflecting mainly higher legal expenses, including reserves for litigation and regulatory proceedings. The company generated lower revenues, while loan loss provisions were reduced significantly.
The company's net loss for the third quarter was $0.4 billion or $0.17 per share, compared to net income of $5.71 billion or $1.40 per share in the previous year. Reported total net revenue for the quarter was $23.12 billion, lower than $25.15 billion in the same period last year.
JPM closed Friday's regular trading session at $54.30, up $0.09 or 0.17 percent on a volume of 24.81 million shares.
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