US settlement talks with JPMorgan hit a hurdle

AP, WASHINGTON

Thu, Oct 31, 2013 - Page 15

Negotiations between the US Department of Justice and JPMorgan Chase & Co have hit a stumbling block that has put the talks at risk, a person briefed on the discussions said on Tuesday.

More than a week ago, the bank tentatively agreed to pay US$13 billion to settle allegations surrounding the low quality of mortgage-backed securities it sold in the run-up to the 2008 financial crisis.

One of the unresolved issues in the talks: JPMorgan says it should be able to seek money from a receivership involving Washington Mutual, a failed savings and loan that JPMorgan purchased in 2008, said the person, who spoke on condition of anonymity because the source was not authorized to speak by name about the matter.

The receivership is overseen by the Federal Deposit Insurance Corp (FDIC), the independent agency created by US Congress to maintain stability in the banking system.

The FDIC’s position is that JPMorgan is responsible for any liabilities regarding the acquisition of Washington Mutual.

The two sides also disagree over whether the bank can face criminal charges. The tentative US$13 billion deal only covers civil issues, said the person briefed on the discussions. In a proposal made on Sunday night, the bank said it wants to limit any possible criminal exposure to a single ongoing criminal investigation in California, according to the person, who said talks are continuing.

“I have no comment on the rumors about the talks with JPMorgan,” justice department spokesman Brian Fallon said.

JPMorgan spokesman Mark Kornblau in New York declined to comment.

On Friday, a government agency that oversees mortgage finance companies Fannie Mae and Freddie Mac announced that JPMorgan had agreed to pay US$4 billion of the US$13 billion involved in the tentative settlement. The US$4 billion resolves claims that the bank misled Fannie and Freddie about risky mortgage securities it sold to them before the housing market collapsed.

JPMorgan sold US$33 billion in mortgage securities to Fannie and Freddie between 2005 and 2007, according to the government. That was the second-most sold to Fannie and Freddie ahead of the housing crisis, behind only Bank of America Corp. The securities soured after the housing bubble burst in 2007, losing billions of dollars in value.