It’s a good thing JPMorgan has deep pockets.
The US investment bank said Tuesday it had agreed to a record $13 billion settlement — lmost the equivalent of Iceland’s 2012 gross domestic product — with US regulators.
The deal follows months of tense negotiations between JPMorgan and the US government, which was keen to show the public that it was holding Wall Street accountable for its misdeeds.
JPMorgan admitted it had routinely misled investors over the quality of its mortgage-backed securities, but denied it had broken US law.
The bank's behavior goes to the heart of the US housing crisis which triggered the financial meltdown across the world: banks issued mortgages to borrowers who couldn’t afford them, then sold those loans to investors who thought they were safe. And, as we know now, they clearly weren’t.
“Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown,” said Attorney General Eric Holder in a statement.
“JPMorgan was not the only financial institution during this period to knowingly bundle toxic loans and sell them to unsuspecting investors, but that is no excuse for the firm’s behavior.”
Under the terms of the settlement, JPMorgan will pay $4 billion to homeowners hurt by its practices, $7 billion to settle federal and state civil claims against it and $2 billion to the US government as a fine.
The bank has set aside enough money to cover the settlement, which means it won’t impact earnings. In any case, most of the money will be tax deductible. Check out CNNMoney’s story to find out why.
But the settlement is not the end of the company’s legal woes.
The bank and its executives could still face criminal prosecution for fraud. In the meantime, it has to contend with at least nine other government investigations.