It would also leave JPMorgan and its executives still at risk of criminal prosecution, a humbling concession. The bank emerged from the financial crisis relatively unscathed but has struggled to shake off the vestiges of that era. Like many banks, it has been accused of selling bad residential mortgages to investors, including Fannie Mae and Freddie Mac, which lost billions when the housing market crashed.
JPMorgan and the Justice Department have been negotiating a potential deal for months, but talks heated up a few weeks ago and eventually included direct discussions between the bank’s chief executive, Jamie Dimon, and Attorney General Eric H. Holder Jr.
The stakes are high for both sides. Pulling off a record settlement would be a significant accomplishment for Holder. The Justice Department has levied multimillion-dollar fines against big banks, including HSBC and Barclays, but to lawmakers and consumer advocates, those penalties are tantamount to a slap on the wrist.
“Resolving the mortgage cases for $13 billion is a major win for the DOJ, particularly since the deal only applies to the civil case,” said Thomas Gorman, a securities lawyer at Dorsey & Whitney. “It also brings to account a major Wall Street player for the market crisis, something enforcement officials and the public have been looking for.”
JPMorgan is urgently attempting to wrap up a barrage of investigations into its conduct in recent years, leading the bank to agree to pay billions to settle various cases in recent months. Dimon, once considered the sage of Wall Street, has taken a conciliatory tone with regulators and has called the legal fallout “painful” for him and the company.
The deal could be finalized soon, according to a person familiar with the negotiations who was not authorized to speak publicly. The Justice Department and JPMorgan are hammering out the final details, including a statement listing what the company did wrong. Such an admission of wrongdoing could be used in other legal actions against the bank, making it a significant sticking point during the talks.
Officials at JPMorgan and the Justice Department declined to comment.
Selling mortgage securities was a brisk business for Wall Street for many years. Banks, after issuing loans to home buyers, would pool hundreds of mortgages and market the bundles as investments that could be traded like stocks. When the housing market crashed, the securities were worthless and left investors saddled with massive losses.