Jamie Dimon (Head of J.P. Morgan Chase) Is Forced To Eat A Large Portion Of Humble Pie By The Justice Dept.
He runs the biggest U.S. bank, Forbes ranks him as one of the 40 most-powerful people in America and he earns more than $25 million a year.
But JPMorgan Chase & Co CEO Jamie Dimon still has to show ID at a government building, just like everyone else.
Dimon met with Attorney General Eric Holder Thursday, amid talk the bank could be near an $11 billion settlement of civil and criminal probes.
The potential cost of a J.P. Morgan Chase JPM +0.73% & Co. settlement with regulators has shot up to $11 billion after U.S. Attorney General Eric Holder rejected the bank's offer of a $3 billion payment to end criminal and civil charges, according to people familiar with the matter.
The possible price tag rose as talks have widened to cover more cases with more regulators.
Discussions between J.P. Morgan, the Justice Department and other agencies were proceeding on Wednesday, although it wasn't clear if all sides would reach an agreement. The talks are still very fluid and could end quickly without a deal being struck, two people familiar with the discussions said.
J.P. Morgan Chase is in discussions to settle probes related to mortgage-backed securities for $11 billion. WSJ's Devlin Barrett says the amount being discussed would include $7 billion cash and $4 billion in relief to consumers.
As large as the potential settlement may be, two people cautioned that even if a deal is reached, it may not resolve one of the biggest dangers for the bank: the potential for criminal charges stemming from the mortgage-backed securities probe. The possibility of such charges is a key incentive for the bank to try to cut a deal, but also one of the most difficult issues on which to reach an agreement, according to the two people familiar with the discussions.
One scenario under discussion would include a $7 billion cash penalty plus $4 billion in relief that J.P. Morgan would provide to consumers, one of these people said.
But the two sides still were billions of dollars apart, depending on which set of investigations might ultimately be resolved in any potential deal, another person said. The price tag could change substantially again if one or more agencies bow out of the discussions.
J.P. Morgan wants any potential pact to make it clear that the probes are finished and that there won't be any further liability on mortgage-backed securities, according to one person familiar with the talks.
Some government lawyers involved in the discussions are trying to firm up the framework of an agreement by next week, one person said.
The talks revolve around residential mortgage-backed securities that J.P. Morgan, Bear Stearns Cos. and Washington Mutual Inc. issued between 2005 and 2007.
Authorities have been investigating whether J.P. Morgan, which acquired Bear Stearns and Washington Mutual during the financial crisis, misled investors about the quality of the underlying mortgages that were tied to the securities. Many of those securities collapsed in value as housing prices eroded. J.P. Morgan has estimated that roughly 70% of the securities involved were issued by the other two institutions.
The mortgage-securities matter is one of J.P. Morgan's largest legal challenges.
The bank last week agreed to pay $920 million and admitted wrongdoing to settle claims with four regulators tied to the London "whale" trading blunder that cost the bank more than $6 billion in 2012. The bank also agreed to pay $80 million to settle claims related to its credit-card practices.
An $11 billion payment would be the largest single-company settlement the Justice Department has ever reached. Last year, the department and nearly all the states' attorneys general announced a $25 billion deal with the five largest mortgage servicers over alleged abuses in that industry.
The Justice Department is leading the mortgage-securities negotiations, which also include the Federal Housing Finance Agency and New York Attorney General Eric Schneiderman.
The FHFA has asked J.P. Morgan to pay more than $6 billion to settle claims the bank misled mortgage-finance companies Fannie Mae and Freddie Mac about the quality of mortgages it sold to them during the housing boom.
Mr. Schneiderman, meanwhile, sued the bank in 2012 over securities issued by Bear Stearns that J.P. Morgan bought in the early days of the financial crisis as Bear Stearns neared collapse. Mr. Schneiderman said that investors lost $22.5 billion on the securities issued by Bear Stearns. At the time Mr. Schneiderman filed the suit, J.P. Morgan said it would contest it and that it was disappointed the New York attorney general "decided to pursue its civil action without ever offering us an opportunity to rebut the claims."
The Justice Department informed J.P. Morgan on Monday that it would file a lawsuit after discussions broke down. J.P. Morgan then offered to pay $3 billion to settle the case, according to a person familiar with the discussions.
Mr. Holder rejected that offer, but the two sides continued to talk, and the possible dollar amount of a deal continued to rise, as the bank sought to resolve other active investigations, according to the person.
If the two sides can't reach an agreement, the government still could file its threatened lawsuit on the mortgage-backed securities case and proceed to court, according to people familiar with the case.
Mortgage securities have been a continuing problem for J.P. Morgan as it tries to move past its legal and regulatory woes. The bank already settled a mortgage-backed securities civil case with the U.S. Securities and Exchange Commission late last year. In that case, the bank agreed to pay $296.5 million. The bank didn't admit or deny allegations of misconduct.
Another settlement on mortgage securities wouldn't necessarily close the door on J.P. Morgan's troubles, however. The U.S. Attorney for the Southern District of New York is investigating people involved with the London whale blunder. And the Commodity Futures Trading Commission is looking into whether the bank manipulated a market index tied to corporate bonds, according to people familiar with the situation.
J.P. Morgan Chief Executive James Dimon and the bank's board of directors are eager to move past their regulatory quagmire and increasingly are willing to pay to settle cases, according to people familiar with the bank's strategy. Executives and board members are concerned the lingering fallout will weigh on employee morale and could ultimately hurt the bank's performance.
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