JPMorgan Nears $6 Billion Settlement with Investors

Institute Of International Finance Annual Membership Meeting
Pete Marovich/Bloomberg via Getty ImagesJPMorgan CEO Jamie Dimon

By Karen Freifeld

NEW YORK -- JPMorgan Chase is nearing an agreement worth close to $6 billion with a group of institutional investors to settle claims over shoddy mortgage-backed securities issued in the run-up to the financial crisis, a source familiar with the talks said.

Representatives of JPMorgan (JPM) and the investors met Friday to discuss the settlement, though the two sides have not yet agreed to formal terms, the source said.

The potential deal is separate from the preliminary $13 billion settlement JPMorgan has reached with the U.S. government that would resolve a raft of civil actions brought by several enforcement agencies.

The group of more than a dozen bondholders includes BlackRock (BLK), Allianz SE's Pacific Investment Management and Neuberger Berman, the source said.

Kathy Patrick, a lawyer for the investors group, didn't immediately respond to requests for comment. JPMorgan also wasn't immediately available outside regular U.S. business hours.

Patrick and her Houston-based firm, Gibbs & Bruns, also represent a group of investors that struck an $8.5 billion settlement with Bank of America (BAC) in 2011 over similar allegations stemming from the bank's Countrywide unit. %VIRTUAL-article-sponsoredlinks%A New York state judge is weighing whether to approve that deal after American International Group (AIG) and others objected, arguing that it was too small.

In 2011, the law firm said its investor clients had instructed trustees overseeing $95 billion of securities issued by JPMorgan's affiliates during the housing boom to investigate whether the bonds were backed by ineligible mortgages.

The firm said its clients represented holders of more than 25 percent of the voting rights in the securities, which included bonds from Bear Stearns and Washington Mutual, two firms that JPMorgan took over during the financial crisis.

JPMorgan reported a third-quarter loss earlier this month, the first under CEO Jamie Dimon, after recording a $7.2 billion after-tax expense to add money to its legal reserves in anticipation of settling the U.S. government's mortgage claims.

The company had $23 billion in its legal reserves as of the end of the quarter.

Two sources familiar with the matter told Reuters that JPMorgan's tentative $13 billion settlement with the U.S. government could end up costing the bank closer to $9 billion after taxes, because the majority of the deal was expected to be tax deductible.

The settlement talks were reported earlier by The Financial Times and The Wall Street Journal.


Originally published