For $13B, JP Morgan settles a slew of legal issues

JP Morgan and the Department of Justice announced a huge settlement that covers a host of legal claims against the bank.

Price tag is $13 billion, but keep in mind that claims credit for $4B the bank separately negotiated with Fannie and Freddie. The Wall Street Journal report is J.P. Morgan, U.S. Settle for $13 Billion.

A few of the key terms:

• JPM acknowledges it (or its acquired banks) knew it (or predecessors) sold loans that didn’t meet underwriting standards. (See update below.)
• No acknowledgement of criminal behavior.
• JPM will not seek reimbursement from FDIC for failed loans it acquired from WaMu and Bear – This is a major concession increasing the net cost a billion or two.
• Criminal investigation by DoJ will continue.

Update:  Jonathan Weil reports Why Believe What the Government Says About JPMorgan? He’s actually read the statement of facts and didn’t find any adverse admissions by JPM. They admit ‘information was received’ there were bad loans, but doesn’t identify whether JPM agreed with that assessment or when the information was received. They acknowledge a staff person complained in writing that said staffer thought some loans were substandard, but doesn’t say whether JPM agreed. They acknowledge some vendors complained about the quality of some loans but don’t say whether they agreed. Based on his read, JPM didn’t admit to much of anything.

The breakdown of the settlement shows the breadth of the claims and the parties settling:

• $4B – FHFA, on behalf of innocent, hapless Fannie and Freddie
• $4B – “relief” to consumers
• $2B – penalty paid to DoJ
• $1.4B – NCUA
• $0.6B – state of New York
• $0.5B – FDIC
• $0.3B – state of California
• $0.1B – state of Illinois
• $0.05B – states of Massachusetts and Delaware

The relief to consumers consists of multiple parts. About $1.5B to write down principal on underwater loans, about $0.3B or $0.5B forbearance, and $2.0B for other stuff. The other stuff in the relief category will include new loans to low-income borrowers, write-off abandoned but not foreclosed loans, and reduction in urban blight.

The article says this brings the total dollar amount of settlements for JPM to around $28B. This mega-settlement doesn’t resolve the last of their legal problems, but gets a host of them into the rear view mirror.

If you want some tangential commentary on the settlement that describes part of why I’m still scratching my head, check out the related WSJ editorial: J.P. Morgan and Its ‘Victims’.