JP Morgan sent to the naughty step with a £13bn fine

Following months of negotiations the bank has agreed to pay £13bn to the US government for mis-selling mortgage securities.

by Gabriella Griffith
Last Updated: 04 Dec 2013

They say victims often need something called 'closure' before they can start the recovery process. Perhaps the US government can enjoy some semblance of a conclusion, after JP Morgan admitted wrongdoing in relation to the US housing crisis and agreed to cough up for a record breaking £13bn settlement.
 
The bank acknowledged it made ‘serious misrepresentations to the public,’ in overstating the quality of mortgages it sold to investors in the run-up to the financial crisis. It was this type of behaviour, authorities said, which ultimately led to the US housing crisis, which in turn caused the financial crash in 2007.
 
‘JP Morgan employees knew that the loans in question did not comply with those guidelines and were not otherwise appropriate for securitisation, but they allowed the loans to be securitised - and those securities to be sold - without disclosing this information to investors,’ said the Department of Justice.
 
‘The conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown,’ added Attorney General Eric Holder.

MT doubts we'll be seeing any #AskJPM Twitter Q&As for quite a while…
 
Of the $13bn being handed over, $4bn will go to homeowners affected by JP Morgan’s actions, $7bn will be put towards federal and civil state claims (including compensation for investors) and $2bn will wing its way to Capitol Hill.
 
It’s the heftiest settlement ever agreed between the US government and a corporation. The fine is certainly a blow to the bank, but it’s one it’s been readying itself for – it said it has already set aside all the funds it needs to pay for the fine and therefore its projected earnings won’t be impacted. It probably just fished it out from down the back of the couch. JP Morgan’s shares actually rose 0.7% following the news to $56.15 – investors are no doubt relieved to see a bit of closure of their own.
 
‘We are pleased to have concluded this extensive agreement,’ said Jamie Dimon, JP Morgan chief executive. No kidding.
 
But it’s certainly not the end of settlements for the world’s second largest bank. It is facing a further nine government investigations and may still face criminal charges linked to the shifting of dodgy mortgages to unwitting investors. The bank also faces questions over its potential involvement in the Libor scandal and its hiring practices in China.
 
But, just like the Scouts, JP Morgan is always prepared: it said last month it has set aside $23bn to cover litigation costs. All well and good, but the bank might do well to take on board one of the Scouts' other famous mottos: ‘do the right thing.’

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