A number of JPMorgan Chase’s legal battles may be coming to an end as the bank negotiates a multibillion-dollar settlement with the Justice Department to cover a wide range of pending investigations, a person familiar with the talks said late Tuesday.
JPMorgan has made multiple offers, the latest in excess of $3 billion to resolve several ongoing probes, including allegations that it manipulated energy markets and sold shoddy mortgage securities to investors. Federal prosecutors, however, want the bank to pay much more to wrap up the cases, the person said.
The agreement could rival the Justice Department’s largest settlement with a single company. Two years ago, GlaxoSmithKline agreed to pay $3 billion to settle a host of charges, including defrauding Medicaid.
For JPMorgan, the multibillion-dollar deal also would represent its largest settlement to date, even after it has handed over billions to state, federal and international authorities for an array of violations during the past year. The barrage of legal actions against JPMorgan is a surprising turn for an institution that was once held up as the strongest big bank to emerge from the financial crisis.
The bank has faced its share of lawsuits and investigations in the aftermath of the crisis but nothing on the scale of its current battles. JPMorgan is staring down at least five investigations by Justice, three by the Securities and Exchange Commission and three by the Commodity Futures Trading Commission, according to the bank’s second-quarter filing.
A person familiar with the Justice negotiations said the bank is eager to put the investigations to rest. Negotiations arose out of settlement talks with JPMorgan over the sale of mortgage-backed securities between 2005 and 2007. Federal prosecutors in California were preparing to announce civil charges against the bank Tuesday, but they were told by officials in Washington to hold off as settlement discussions had gotten underway, another person familiar with the conversation said.
The full scope of the deal is unclear, but people with knowledge of the negotiations said it may include an agreement to end a lawsuit filed by New York Attorney General Eric Schneiderman in October over shoddy mortgage securities.
Talks between JPMorgan officials and federal prosecutors have been frenzied, the person said. Conversations really picked up steam and have taken on a degree of urgency. The person with knowledge of the settlement talks said they came to a head rather quickly.
Officials at JPMorgan and the Justice Department declined to comment.
The settlement talks arrive a week after JPMorgan agreed to pay a total of $920 million in fines to U.S. and British regulators over its “London Whale” fiasco, in which bank traders racked up $6.2 billion in losses because of bad bets on credit derivatives. As a part of that deal, the financial goliath admitted to the SEC that its handling of the losses violated securities law.
The admission represented a break from the agency’s routine practice of allowing defendants to pay fines without acknowledging liability. While legal experts have said the development is nothing more than a symbolic victory for the SEC, it could influence JPMorgan’s settlement talks with other regulators.
Even if the bank were to resolve all outstanding cases with the Justice Department, it must still contend with federal probes into its debt-collection practices and its role in the manipulation of a benchmark measure tied to interest-rate swaps among other things.
In a memo to employees last week, JPMorgan chief executive Jamie Dimon said the bank is spending billions of dollars to clean up its problems. He said it has added 4,000 employees across the bank to improve compliance operations and poured about $1 billion into the effort.
The bank came through the financial crisis virtually unscathed under the guidance of Dimon, who as a result became a respected voice of the industry in Washington. But congressional investigations and regulatory actions against JPMorgan have chipped away at that reputation and raised questions about whether the bank is too big to manage. The bank remains one of the most profitable in the industry, netting $6.5 billion in the most recent quarter.