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Fish Alert: Settlements Reach into the Billions as JPMorgan Chase Resolves Civil Claims Involving Troubled Mortgages

October 28, 2013

Fish Alert: Settlements Reach into the Billions as JPMorgan Chase Resolves Civil Claims Involving Troubled Mortgages

October 28, 2013

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Settlements Reach into the Billions as JPMorgan Chase Resolves Civil Claims Involving Troubled Mortgages

On Friday afternoon, JPMorgan Chase struck a deal with the Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, to settle federal civil claims against the bank alleging that shoddy underwriting contributed to the 2008 mortgage-related financial crisis. The deal will cost JPMorgan just over $5 billion and also leaves the bank responsible for losses on failed mortgages issued by Washington Mutual, which JPMorgan bought out of receivership. Relatedly, JPMorgan is close to a broader deal with the Justice Department that will settle a host of additional civil claims related to the 2008 financial crisis. Just a few weeks ago, that settlement contemplated the princely sum of $13 billion, but this amount is likely to drop given Friday’s settlement with the FHFA.

The broader settlement discussions had stalled earlier this year based on both the magnitude of the proposed settlement and the Justice Department’s insistence that criminal charges remain a possibility. The discussions resumed, however, in late September, when the Justice Department planned to announce civil charges against the bank over its sale of troubled mortgage investments. That spurred a call from Jamie Dimon, the Chief Executive Officer of JPMorgan, to top-level government officials and ultimately led to an in-person meeting between Mr. Dimon and Attorney General Eric Holder. This broader potential settlement, along with the recent FHFA settlement, could be a bellwether for future negotiations involving the Justice Department.

First, the settlements reflect a stronger stance by the Justice Department regarding the resolution of criminal charges. The fact that a Non-Prosecution Agreement was not included likely signifies that the government wants the bank to enter a guilty plea.

Second, the monetary value of the settlements appears to be punitive. Previously this fall, JPMorgan had already entered into over $1 billion in settlements with various U.S. and foreign government agencies related to large trading losses in its London branch in 2012. Similarly, in the spring of 2013, JPMorgan, along with other major national banks, settled claims that it improperly handled home foreclosures during the housing market crisis. Following these earlier settlements, commentators noted that the cost of the deals, while significant, would not have an enormous financial impact on the bank. However, if the potential multi-billion settlement with the Justice Department is added to the $5 billion FHFA settlement, the combined sum could represent as much as 50% of the bank’s yearly profits.

Finally, the perceived harshness of the deals has left some wondering whether any good deed truly goes unpunished. While JPMorgan certainly sold its share of mortgage securities to Freddie Mac and Fannie Mae, some of the liabilities at issue resulted from the bank’s acquisition of Bear Stearns and Washington Mutual in 2008, at the height of the financial crisis. The settlements show that a company can never be too careful when considering successor liability of any potential acquisition, even when the government has a hand in arranging the transaction.

We will be providing updates on our litigation blog as developments about these claims and JPMorgan’s settlement become available. Follow our blog to stay current with Fish. Should you have questions, please contact:



The opinions expressed are those of the authors on the date noted above and do not necessarily reflect the views of Fish & Richardson P.C., any other of its lawyers, its clients, or any of its or their respective affiliates. This post is for general information purposes only and is not intended to be and should not be taken as legal advice. No attorney-client relationship is formed.