JPMorgan Chase is in talks with the Justice Department to pay $13 billion to the U.S. government over its role in the subprime mortgage fallout that led to the 2008 recession. The NY Times says, "It would be a record penalty that would cap weeks of heated negotiating and underscore the extent of the bank’s legal woes." Thanks, Obama!
The deal would help settle some of the civil cases into the firm's business, but the Wall Street Journal reports, "The deal, struck Friday night, doesn't resolve a continuing criminal probe of the bank's conduct, which could result in charges against individuals or the bank itself and possibly increase the penalty tab. The two sides continued to disagree over an admission of wrongdoing that would end the criminal probe and decided instead to resolve the civil allegations related to the mortgage securities."
Last year, NY Attorney General Eric Schneiderman had sued JPMorgan Chase "for making fraudulent misrepresentations and omissions to promote the sale of residential mortgage-backed securities (RMBS) to investors. According to Attorney General Schneiderman’s lawsuit, these defendants deceived investors as to the care with which they evaluated the quality of mortgage loans packaged into residential mortgage-backed securities prior to Bear Stearns & Co’s collapse in early 2008, incurring losses that have totaled approximately $22.5 billion to date." Part of the $13 billion goes towards settling that suit, but the NY Post is sad for JPMorgan:
Analysts called the settlement a raw deal given that, by JPMorgan’s own estimate, some 80 percent of its mortgage-backed securities had been acquired at the request of the government, when it bought Bear Stearns and Washington Mutual in 2008.
“I just think that these banks like JPMorgan are being whacked like a pinata,” said Doug Kass, a hedge-fund manager at Seabreeze Partners.
“This sounds like a raw deal for JPMorgan and shareholders,” Kass said.
“Ultimately, the earnings power of banks is being regulated out of them from the [Securities and Exchange Commission], from the Department of Justice,” Kass added.
A bank analyst, Dick Bove, also told the Post, "This is a basic and fundamental attack on capitalism... It is possible that the government is taking away the property of the JPMorgan shareholders without the shareholders having committed any crime or having any say in the expropriation of these funds."
Earlier this year, JPMorgan agreed to pay nearly $1 billion over the $6 billion London Whale fiasco.