America’s largest bank, JP Morgan Chase, has agreed a record $13 billion settlement with the Justice Department, and admitted to having made “serious misrepresentations” to its investors.
The settlement, the largest civil settlement ever agreed by a single compmany, ends months of investigations by the DoJ into the bank’s sale of home loans in the years leading up to the Great Crash of 2008. It also allows the bank to avoid a potentially expensive and embarassing public trial.
The fine relates to JP Morgan’s practice of selling mortgage-backed securities to its investors that the bank knew to be toxic. When the sub-prime mortgage crisis erupted in 2008 the deals went bad, leading to a credid crisis that plunged the world into the most serious financial crisis since the Great Depression, a crisis whose effects are still being felt today.
As significant as the fine itself is the admission of malpractice. Previously banks have been highly resistant to any admission of wrongdoing for fear of opening themselves up to further lawsuits. This settlement and admission of having misled investors leaves the bank open to further criminal investigation.
The Attorney General Eric Holder, whom some accused of being too close to Wall Street after he met personally with JP Morgan Chief Executive Jamie Dimon to discuss the settlement, said that while JP Morgan was not the only bank responsible for knowingly bundling together toxic loans for investors, this was no excuse for their behaviour.
Speaking after the settlement was announced, Attorney General Holder said:
“The size and scope of this resolution should send a clear signal that the Justice Department’s financial fraud investigations are far from over. No firm, no matter how profitable, is above the law, and the passage of time is no shield from accountability.”
John Coffee, a professor at Colombia law school, said that the settlement did not mean JP Morgan was in the clear, and that proscutions of individuals could follow.
JP Morgan came through the Great Crash in a strong position, however it has been sogged by allegations of malpractice and criminal behaviour. It has paid a number of fines and settlements in the years following the 2008 Crash, including:
A payment of $4.5bn earlier this month to settle allegations it has mis-sold mortgage bonds to pension funds and other institutional investors.
In September, the company paid $920m to settle US investigations into the “London Whale” trading scandal.
In the same month, JP Morgan paid another $390m in refunds and $80m in settlement for billing credit card customers for identity theft protection they did not receive.
In July, the bank paid $410m in penalties and repayments related to alleged manipulation of California and midwest electricity markets.
$9 billion of the settlement will be used to settle federal and state civil claims from various groups and individuals through the residential mortgage-backed securities (RMBS) working group, a 2012 organisation designed to investigate malpractice in the mortgage-backed securities market.
The remaining $4 billion will go to urbans areas such as Detroit which were battered by housing crisis that followed the Crash in 2008. It will also be used to offer lower-rate loans to struggling low-income home buyers.
Brian Kettering, the executive director of the Campaign for a Fair Settlement said of the announcement:
“Criminal prosecution is still needed to deter future crimes. But more and likely better relief for struggling homeowners is a hard-earned victory for people across the country who have spoken out—and even gone to jail—demanding an end to Wall Street impunity.”
h/t: The Guardian