JPMorgan Chase & Co. (NYSE:JPM) is in settlement talks with mortgage-backed securities bonds buyers for a $5.75 billion claim.
Dan Fitzpatrick and Julie Steinberg of The Wall Street Journal report the investor group includes asset managers BlackRock Inc. (NYSE:BLK) and Neuberger Berman Group LLC. Earlier, the group received $8.5 billion from Bank of America Corp towards settlement of similar claims.
JPMorgan’s recent settlement
Recently, JPMorgan Chase & Co. (NYSE:JPM) reached a tentative agreement to pay a record $13 billion fine to the Justice Department to settle probes into its residential mortgage-backed securities. If the amount is confirmed, it would be the largest ever paid by a U.S. company in this type of settlement with the government, well over half the bank’s earnings last year of $21.3 billion. It’s also significantly higher than J.P. Morgan’s previous offer of $11 billion.
If finalized, $4 billion would settle allegations by the Federal Housing Finance Agency, a mortgage regulator, that JPMorgan Chase & Co. (NYSE:JPM) overstated the quality of the mortgages it sold on to the government-sponsored housing finance enterprises Fannie Mae and Freddie Mac.
Investors’ claims different from $13 billion agreement
Dan Fitzpatrick and Julie Steinberg of The Wall Street Journal clarify that the discussions with the investor group are different from the $13 billion tentative agreement that JP Morgan concluded with the Justice Department.
Citing known sources, The Wall Street Journal reports that the investor group has been having on-and-off settlement discussions with J.P. Morgan over the past year. They met last week to hash out a possible deal, though no final terms have been agreed upon. Houston lawyer Kathy Patrick of Gibbs & Bruns LLP represents the investor group.
Large banks face mounting claims
Several large U.S. banks have been facing mounting claims to repurchase mortgages that allegedly ran afoul of their own underwriting standards. Besides claims from government-sponsored enterprises such as Fannie Mae and Freddie Mac, banks have to confront claims from private investors and insurers.
According to a 2012 analysis conducted by Compass Point Research & Trading LLC, 11 of the largest U.S. banks face potential future losses of $29.7 billion from put-back claims from private investors and government-supported agencies. However, the majority of claims on these 11 banks would come from private investors.
Recently, U.S. mortgage watchdog Federal Housing Finance Agency has reportedly sought $6 billion from Bank of America Corp (NYSE:BAC) for settlement of claims that the bank has willfully sold RMBS to Fannie Mae and Freddie Mac.