JPMorgan Chase & Co, enmeshed in legal battles with regulators, US agencies and clients, agreed with 21 institutional investors to pay US$4.5 billion to resolve claims the bank sold faulty mortgage securities.
The preliminary deal covers 330 mortgage bond trusts issued between 2005 and 2008, JPMorgan said in a statement on Friday. The accord still needs approval from trustees overseeing those securities and may be subject to court review, JPMorgan said.
The agreement adds to the litany of litigation expenses absorbed by JPMorgan, the largest US bank. Last month, the company agreed to pay US$5.1 billion for claims that the lender misrepresented mortgage bonds sold to Fannie Mae and Freddie Mac. Chief executive officer Jamie Dimon has warned that more legal disputes lay ahead, and the bank has disclosed at least eight Department of Justice investigations.
“With every one of these that gets settled, we are theoretically closer to the end,” said Nancy Bush, a bank analyst who founded NAB Research LLC in New Jersey. “But the offset is that every one of these settlements seems to beget yet another lawsuit from somebody else. I’m losing track of them, we need a scorecard.”
The agreement would pay for repurchase demands and servicing claims on mortgage bonds issued by JPMorgan and Bear Stearns Cos, which the bank purchased in 2008. It does not include securities issued by Washington Mutual Inc, the failed lender whose assets were bought by JPMorgan later that year.
The investor group is led by the law firm Gibbs & Bruns LLP, and includes asset-management units of Goldman Sachs Group Inc, BlackRock Inc and Pacific Investment Management Co.
“We are very pleased that our clients’ steadfast work has again borne fruit, in the form of a binding offer from JPMorgan to pay US$4.5 billion in cash and improve mortgage servicing,” Kathy Patrick, the law firm’s partner handling the case, said in an e-mail.
Bank of New York Mellon Corp plans to evaluate the proposed JPMorgan settlement with other trustees included in the offer, according to an e-mail from Kevin Heine, a spokesman for the New York-based custody bank. Representatives for US Bancorp, Deutsche Bank AG and Wilmington Trust Co, some of the other trustees, declined to comment or did not immediately respond to inquiries after regular business hours.
“This settlement is another important step in JPMorgan’s efforts to resolve legacy-related RMBS matters,” the New York-based company said in the statement, using the acronym for residential mortgage-backed securities.
The bank has enough reserves to cover the settlement as well as any other remaining mortgage bond litigation, according to the statement. JPMorgan’s quarterly regulatory filing showed the bank may need as much as US$5.7 billion more to cover “reasonably possible” legal losses beyond current reserves, even after it added US$9.2 billion in pretax cash to its litigation funds in the third quarter.
Lenders have been beset by demands for refunds and compensation from investors, customers and regulators who say the banks used sloppy underwriting to create mortgages during the housing boom that preceded the 2008 financial crisis.