JPMorgan Chase Settles Mortgage Claims for $13 Billion
The deal marked the latest—and biggest—settlement JPMorgan has reached with agencies this year. Last month, the bank revealed it has set aside $23 billion to cover litigation expenses. In addition to Sullivan & Cromwell, Wilmer Cutler Pickering Hale and Dorr and Paul Weiss Rifkind Wharton & Garrison have reaped significant fees working for JPMorgan.
"We continuously evaluate our legal reserves, but in this highly charged and unpredictable environment, with escalating demands and penalties from multiple government agencies, we thought it was best to significantly strengthen them," Dimon said at the time.
On Nov. 15, JPMorgan reached a $4.5 billion deal to settle claims by 21 institutional investors, agreeing to repurchase faulty residential mortgage-backed securities. That amount is in addition to the recovery announced on Tuesday.
The bank paid more than $1 billion earlier this fall to settle charges by the U.S. Securities and Exchange Commission, the Commodity Futures Trading Commission and other regulators over massive credit default swaps trading losses by the so-called London Whale.
JPMorgan faces a continuing legal fight with Deutsche Bank, seeking $10 billion for faulty mortgage-backed securities that it purchased from Washington Mutual before JPMorgan bought that failed bank in 2008. JPMorgan argues that, based on finely tuned contract language, liability for Washington Mutual's shoddy securities actually belong to the Federal Deposit Insurance Corp., which acted as its receiver.
The $13 billion settlement specifically prohibits JPMorgan from demanding indemnification from the FDIC for the Washington Mutual securities at issue in the government’s case. It does not, however, appear to bar JPMorgan from continuing to argue in the Deutsche Bank case that the FDIC is on the hook for Washington Mutual’s other mortgage-backed securities. That case is pending in U.S. District Court for the District of Columbia.
“The settlement announced today will provide a significant recovery for six FDIC receiverships. It also fully protects the FDIC from indemnification claims out of this settlement,” FDIC Chairman Martin Gruenberg said. “The FDIC will continue to pursue litigation where necessary in order to recover as much as possible for FDIC receiverships, money that is ultimately returned to the Deposit Insurance Fund, uninsured depositors and creditors of failed banks.”
Boies, Schiller & Flexner partner Tanya Chutkan, who represents Deutsche Bank, did not respond to a request for comment.
Plaintiffs lawyer Darren Robbins, a name partner at Robbins Geller Rudman & Dowd, which has sued JPMorgan on behalf of shareholders, praised the deal.
“With complex settlements like this one, the devil is always in the details,” he said. “That said, any recovery that provides compensation to institutions victimized by the packaging, marketing and sale of defective [mortgage-backed securities] is a big step forward.”