JPMorgan share price climbs as bank inks $13 billon US settlement

on Nov 20, 2013
Updated: Oct 21, 2019
Listen, Wednesday, November 20: Shares in JPMorgan Chase & Co (NYSE:JPM) edged higher yesterday, after the largest US bank by assets, agreed a record $13 billion (£8.07 billion) settlement with the US Department of Justice (DoJ), ending months of tense behind-closed-doors negotiations over a string of investigations into its risky mortgage deals.

“We are pleased to have concluded this extensive agreement”, said JPMorgan CEO Jamie Dimon in announcing the deal. He added that the settlement resolves a significant portion of claims tied to mortgage-backed securities issued by the lender and two firms it bought during the credit crisis – Bear Stearns and Washington Mutual.
The DoJ noted in a separate statement yesterday that the accord settles allegations that JPMorgan misled investors and the public when it sold bonds backed by faulty residential mortgages, helping to trigger the 2008 financial crisis.

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“Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown,” Attorney General Eric Holder said in the 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 behaviour.”

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As previously disclosed by inside sources (JPMorgan share price: Agreement with US Justice Department in sight), the settlement obliges JPMorgan to pay $9 billion for federal and state claims, with a $2 billion non-tax-deductible fine to the DoJ. The bank will also pay $4 billion in the form of consumer relief for affected homeowners, including principal forgiveness, loan modifications and efforts to reduce blight. An independent monitor will oversee JPMorgan’s compliance with the agreement.

The penalties total more than half the $21.3 billion JPMorgan reported in 2012 profit and mark the largest government settlement ever paid by a single US company. The deal eclipses the record $4 billion levied on oil giant BP in January after the most devastating offshore oil spill in US history.
**Not the end**
The record settlement may not end JPMorgan’s legal troubles, however. The bank has several lawsuits pending against it and the mortgage businesses it bought from Bear Stearns and Washington Mutual. There is also an ongoing criminal investigation led by the office of US Attorney Benjamin Wagner in Sacramento, California.

The bank may be negotiating or litigating for years and has set aside $23 billion to cover the costs. Last month, in a filing with the Securities and Exchange Commission (SEC), JPMorgan said it may need up to $5.7 billion more. In a conference call with investors yesterday, the company’s chief financial officer, Marianne Lake, said it was “too early” to discuss whether the bank would have to add to its legal reserves.

Erik Oja, an equity analyst with Standard & Poor’s who covers the US banking industry, was quoted by the Wall Street Journal as saying: “These things are never ‘one and done,’ and they’ll likely be more civil charges.” He added, however, “these sort of settlements really do help clear away most of the issues.”
According to AnalystRatingsNetwork data, the shares have an average analysts’ rating of ‘buy’ with a consensus price target of $60.25. The shares closed yesterday’s New York session at $56.15, up 0.74 percent on the day.
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Prices can go up and down meaning you can get back less than you invest. This is not advice. Dealing services provided by Hargreaves Lansdown.


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