J.P. Morgan Chase Co. (NYSE:JPM.N) has reached a settlement of $546 million with the trustee liquidating the failed broker-dealer unit of MF Global Holdings Ltd. (OTC:MFGLC.PK), according to a court filing.
The deal brings customers' efforts to recover money from the securities firm's 2011 collapse closer to resolution.
As part of a settlement reached with trustee James Giddens, JPMorgan will pay $100 million that will be made available for distribution to former MF Global customers, Reuters reported.
JPMorgan will also return more than $29 million of MF Global's funds held by the bank, while releasing claims on $417 million that was previously returned to Giddens.
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"The settlement agreement resolves claims by the trustee and customer representatives against JPMorgan that would otherwise result in years of costly litigation between the parties with an uncertain outcome," Giddens said in the filing.
JPMorgan was the lead on a $1.2 billion loan to MF Global, and was also one of its primary clearing banks before the broker-dealer went bankrupt. The bank had previously retained claims on some of the collateral posted by MF Global.
Giddens will also ask the bankruptcy court to authorize distribution of $250 million to former MF Global customers who traded on U.S. exchanges and $50 million to customers who traded on foreign exchanges, according to the filing.
MF Global declared bankruptcy in 2011. Commodity traders with personal accounts lost millions of dollars when, according to Giddens, the firm improperly used client money to cover corporate transactions as the firm sank. MF Global customer accounts were frozen with the bankruptcy.
The case became a political firestorm when regulators discovered an estimated $1.6 billion hole in the trading accounts of the broker's trading customers.
J.P. Morgan is expected to incur an expense of about $107.5 million involved with the settlement, including attorney's fees. The remaining money in the settlement was largely MF Global money tied up at the bank.
"We are pleased to have reached this settlement, which will help restore funds to MF Global's customers," a spokesman for the bank told The Wall Street Journal. "The agreement resolves all outstanding matters between J.P. Morgan Chase and the MF Global estate, its customers and creditors."
The settlement should free up the trustee to pay an additional $300 million for customers of MF Global, pending court approvals. That would add about five cents on the dollar to the accounts of customers who are slowly getting their money back.
The settlement will also make it easier for Giddens to recover hundreds of millions of dollars stuck in the U.K. that had been tentatively settled under an earlier agreement, sources told the Journal.
Ultimately, the latest settlement will bring customers who dealt on U.S. exchanges closer to 95 cents on the dollar and customers overseas to a range of 50 cents to 80 cents on the dollar, according to one estimate from a person involved in the case.
The settlement, which needs court approval in coming months to be finalized, would mark another milestone for MF Global customers who have been pushing to recover cash misplaced from their accounts in the days around the firm's Oct. 31, 2011, bankruptcy filing.