What JPMorgan’s $13-billion settlement won’t resolve
NEW YORK -- JPMorgan Chase & Co.’s historic $13-billion settlement with the federal government will pay down a major chunk of the bank’s ballooning legal tab.
The Justice Department on Tuesday announced the widely expected settlement of faulty mortgage investments leading up to the financial crisis.
“Through this $13-billion resolution, we are demanding accountability and requiring remediation from those who helped create a financial storm that devastated millions of Americans,” said Associate Atty. Gen. Tony West. “The conduct JPMorgan has acknowledged -- packaging risky home loans into securities, then selling them without disclosing their low quality to investors -- contributed to the wreckage of the financial crisis.”
But the nation’s largest bank still faces a host of criminal investigations and lawsuits stemming from its varied lines of business, not just baggage left over from the housing bust.
The Justice Department’s news release on the settlement noted high up: “The settlement does not absolve JPMorgan or its employees from facing any possible criminal charges.”
“It’s not just mortgages,” said Erik Oja, a banking analyst at S&P Capital IQ. “There’s just a lot of stuff.”
Here’s the rough math: $13 billion resolves less than half -- about 45% -- of the potential legal costs JPMorgan has said it expects to potentially pay in the matters.
The New York-based bank disclosed recently that it had set aside $23 billion to cover mounting legal costs, and noted it could pay as much as $6 billion more.
Though the $13-billion deal lays to rest a raft of government probes into mortgage investments leading up to the financial crisis, it does not end a parallel criminal investigation led by Benjamin Wagner, the U.S. attorney in Sacramento.
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The civil and criminal divisions of Wagner’s office have been investigating mortgage securities packaged and sold by JPMorgan from 2005 until 2007. These in particular are not the mortgage investments bundled by Bear Stearns and Washington Mutual, troubled banks JPMorgan gobbled up during the financial crisis.
Wagner nearly filed a civil fraud lawsuit against JPMorgan, which had been hoping to avoid any criminal penalty as part of a deal with the Justice Department. The department balked at that scenario, and JPMorgan eventually came back to the negotiating table.
In addition to Wagner’s criminal probe, federal prosecutors in Manhattan are investigating the bank’s relationship with Bernard Madoff and what it told regulators before his Ponzi scheme collapsed, the Wall Street Journal has reported.
Also on the criminal front, U.S. Atty. Preet Bharara in Manhattan has said his office’s investigation into JPMorgan’s “London Whale” debacle is continuing. Bharara charged two mid-level traders in August with trying to cover up trading losses from risky derivatives bets that cost the bank more than $6 billion.
“Those are just the big ones,” Oja said of major legal issues left outstanding after the $13-billion deal. “There’s millions of smaller ones.”
JPMorgan’s second-quarter regulatory filing with the U.S. Securities and Exchange Commission reveals a number of other legal headaches.
Litigation involves everything from brokerage MF Global’s collapse, the investment bank Lehman Brothers’ bankruptcy and the unfolding scandal into manipulation of the benchmark interest rate known as the London Inter-bank Offered Rate, or Libor.
Earlier this year, California Atty. Gen. Kamala D. Harris sued JPMorgan over its credit card litigation practices, claiming the bank cut corners and ran a debt-collection mill that victimized thousands of borrowers.
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