Some on Wall Street have portrayed JPMorgan Chase as a victim of government zealotry. The bank is close to striking a $13-billion settlement over mortgage practices — the largest sum a corporation has ever paid to resolve government investigations. Adding to the sense of injustice, the bank’s defenders say that JPMorgan is paying for the sins of two firms that it bought in the depths of the financial crisis, Bear Stearns and Washington Mutual.
But as details emerge, Wall Street’s fears of a largely punitive settlement may not add up.
While the overall sum is large, the money will flow to different parties. The largest sum, more than $6 billion, will serve as compensation for investors like pension funds that suffered losses from mortgage securities sold by JPMorgan, Bear Stearns and Washington Mutual.
Another $4 billion will take the form of relief for struggling homeowners in cities like Detroit. The payout will serve as penance for the bank’s general mortgage practices, and does not stem from any particular mortgage securities or institution, according to one of the people briefed on the talks.
The remaining $2 billion to $3 billion will represent the only fine in the case, according to the people briefed on the talks. That fine, from federal prosecutors in Sacramento, involves a civil investigation into mortgage securities that JPMorgan itself sold in the run-up to the financial crisis. Despite the concerns that JPMorgan was being unfairly taken to task for the practices of Bear Stearns and Washington Mutual, investigations into the two firms are not expected to lead to any fines. Justice department lawyers, one person said, decided against allocating fines to those firms because doing so might appear punitive. The government encouraged and helped arrange the two takeovers.
The people, who spoke on the condition of anonymity, cautioned that the settlement talks were ongoing and that the numbers could shift somewhat.
Mortgage securities sold by Bear Stearns and Washington Mutual are a major contributor to the more than $6 billion of compensation to the investors. Some $4 billion of that is to settle a lawsuit from a federal housing regulator that accused JPMorgan,