The $13 billion settlement deal that is currently being negotiated between JPMorgan Chase & Co. (NYSE:JPM) and the Justice Department has run into difficulties after the bank sought protection from future criminal investigations into issues that are currently under the federal scanner, the Washington Post reported on Tuesday.
The two sides have been inching closer to a settlement over the past several months to dissolve civil charges against the country's largest bank by assets. However, criminal charges remain a possibility in the future, even after the settlement, over a range of issues from bad derivative bets to the bank’s role in not reporting suspicions about Bernard Madoff's Ponzi scheme, and the bank's attempts to secure business in China by giving preferential treatment to officials at Chinese government-run companies.
Attorney General Eric H. Holder Jr. has long been opposed to the bank’s request for protection from potential criminal charges and federal prosecutors were under the impression that the bank had come to terms with the prospect of future criminal prosecution. So, when JPMorgan Chase’s attorneys asked that the bank be released from future criminal charges, negotiations ran into difficulties, the Post reported, citing a source.
Another issue that has stalled the settlement stems from the bank's demand that the Federal Deposit Insurance Corporation, or FDIC, foot a portion of the $13 billion settlement bill. It's JPMorgan's assertion that 80 percent of the bank’s problems stem from its takeover of Washington Mutual and Bear Stearns during the financial crisis. In September 2008, the FDIC struck a deal with JPMorgan to sell a majority of the Seattle-based company's operations while Bear Sterns' takeover by JPMorgan was orchestrated, at the height of the financial crisis, with support from regulators, the Federal Reserve and the U.S. government.
The deal struck between FDIC and JPMorgan Chase, under which the latter paid $1.9 billion to the government for Washington Mutual’s banking operations, warded off risks to the government bank insurance fund in what is dubbed as the largest bank failure in U.S. history.
JPMorgan now argues bad mortgage securities issued by Washington Mutual are not its responsibility and that FDIC should pay for some of the losses. FDIC has countered the argument by saying that the New York-based bank assumed all liabilities when it acquired Washington Mutual. But, in the settlement agreement, the Justice Department wants to prevent JPMorgan from passing liabilities back to the FDIC, the Post reported, citing sources with knowledge of the matter.
Both JPMorgan Chase and FDIC are also facing lawsuits from several investors, including Deutsche Bank AG (NYSE:DB), over Washington Mutual’s breach of contract over mortgages securities.
On Friday, JPMorgan resolved a separate dispute with the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, with a $5.1 billion settlement over faulty mortgage practices that led to massive losses when the housing market crashed.