JPMorgan Chase said Friday it has agreed to pay $4.5 billion in a settlement with a group of investors to resolve claims on bundled pools of home loans that have soured.
It was the latest attempt by the beleaguered bank to move beyond a mountain of litigation stemming from the housing crisis. JPMorgan is hammering out a separate $13 billion settlement with the Justice Department that would dispose of multiple government probes into its sale of bad mortgage securities.
Friday’s deal involves investments sold between 2005 and 2008 by JPMorgan and Bear Stearns, the failed investment bank that JPMorgan purchased five years ago.
The firms, like many on Wall Street, bundled hundreds of home loans into securities and marketed them as investments that could be traded like stocks. When millions of homeowners defaulted on their mortgages and the housing market collapsed, the value of the securities took a nose dive and investors were saddled with huge losses.
A group of 21 asset managers, pension funds and insurance funds that invested in 330 residential mortgage-backed securities (RMBS) trusts issued by JPMorgan and Bear Stearns went after the firms for placing bad loans into the trusts. The money from the settlement will go to the trustee that oversees those 330 securities.
The agreement, which must be approved by the courts, does not extinguish claims on mortgage-backed securities issued by Washington Mutual, another failing institution that JPMorgan picked up in 2008.
“This settlement is another important step in JPMorgan’s efforts to resolve legacy related RMBS matters,” JPMorgan officials said in a statement.
Among the investors involved in the settlement are such prominent firms as BlackRock Financial Management, Goldman Sachs Asset Management and Teachers Insurance and Annuity Association of America.
The deal is the third such agreement the group has reached over mortgage securities in the past two years. Bank of America, for instance, agreed to pay $8.5 billion to resolve similar claims in 2011.
For its part, JPMorgan has urgently tried to put as many cases as possible to rest to restore its good standing in Washington. The financial goliath is embroiled in federal probes into tactics used to collect credit-card debts and its role in the manipulation of a key interest-rate benchmark that affects trillions of dollars of bonds, among other matters.
The barrage of federal investigations and multibillion-dollar settlements led JPMorgan on Oct. 11 to report its first loss in nearly 10 years. The bank suffered a net loss of $380 million after setting aside an additional $9.2 billion for future litigation expenses. All told, the bank has a $23 billion fund to cover its mounting legal costs.