JPMorgan Chase & Co (NYSE:JPM) is facing demands that it pay $6 billion to the U.S. government in order to settle allegations relating to the 2008 financial crisis. According to a Financial Times piece on the settlement, the investment bank is resisting the demands.
The settlement would be one of the single biggest payments in cases relating to the financial crisis. JPMorgan Chase & Co (NYSE:JPM) is suffering under the weight of several investigations from regulators. The multiple cases have been depressing the company’s stock in recent months.
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JPMorgan and mortgage backed securities
The $6 billion settlement is from a 2011 case brought by the Federal Housing Finance Agency against 11 banks involved in the pricing of mortgage backed securities in the run up to the 2008 financial crisis. The agency said the bank misrepresented the quality of the loans backing mortgage backed securities. The bank was said top have overstated the ability of the borrowers involved to pay back those loans.
JPMorgan Chase & Co (NYSE:JPM) sold the mortgage backed securities to Fannie Mae and Freddie Mac, bodies that are currently under the conservatorship of the Federal Housing Finance Agency, in the lead up o the 2008 financial crisis. When borrowers began to default en masse in 2007 and 208 the value of those securities dropped, and the both Fannie and Freddie were left with huge losses.
According to sources that spoke to the Financial Times, JPMorgan Chase & Co (NYSE:JPM) is refusing to pay the $6 billion, but the bank expects to settle the case for a figure in the billions of dollars. Banks contesting claims from the FHFA have not seen many rulings in their favor from the New York court so far. That means that JPMorgan is unlikely to choose to continue the case.
JPMorgan might manage to negotiate a lower settlement in the case, but that will not be the end of its regulatory worries. The “London Whale” case is expected to see the bank pay much more than the $6 billion asked for in this case, and there are yet more cases against the bank to be borne out.
On today’s market JPMorgan Chase & Co (NYSE:JPM) fared poorly, losing more than 2% of their value. The loss is not likely related to this settlement figure, however. Stocks in the financial sector had also lost around an average of 2% of their value at time of writing.