The tentative deal, the largest ever between the US government and a single company, does not release the bank from criminal liability for some of the mortgages it packaged into bonds and sold.
That had been a major sticking point in the discussions, but the government refused to budge on that issue and JPMorgan felt it had no choice but to give in. Until recently, the most JPMorgan was willing to pay was about $11bn.
The ongoing criminal probe underscores how even if this settlement takes some heat off JPMorgan CEO Jamie Dimon, he still has myriad regulatory issues to deal with. The biggest US bank sidestepped the worst of the crisis but now faces more than a dozen probes globally into everything from alleged bribery in China to a possible role in manipulating benchmark interest rates, Libor.
While JPMorgan investors have publicly supported Dimon, many privately have expressed frustration at his run-ins with regulators. A Senate subcommittee report in March detailed how he demanded that subordinates withhold data from one of the bank’s regulators, the Office of the Comptroller of the Currency. Earlier this month, the bank said Dimon was no longer chairman of JPMorgan’s main US retail banking subsidiary, apparently at the request of the OCC.
The preliminary $13bn settlement was reached after he spoke on Friday night with US Attorney General Eric Holder to finalise the broad outline. Dimon went to Washington to meet with Holder on Sept 25, and discussed an $11bn deal at that point. At issue in the settlement is whether the bank sold mortgages that it knew were riskier than they appeared.
Some 80% of the securities in the settlement relate to investment bank Bear Stearns and mortgage lender Washington Mutual, which the government encouraged JPMorgan to buy after they essentially failed during the crisis.