It is the largest settlement ever between the US government and a corporation.
The bank acknowledged it made “serious misrepresentations to the public”, but said it did not violate US laws.
“We are pleased to have concluded this extensive agreement,” said JP Morgan boss Jaime Dimon in a statement.
About $4bn of the settlement is to go to homeowners hurt by JP Morgan’s practices.
Recent JP Morgan fines
- 19 November – $13bn fine with US regulators; includes previously announced $4bn fine with the Federal Housing Finance Agency (FHFA)
- 15 November – $4.5bn settlement with investors over mortgage-backed security losses
- 25 October – $1.1bn settlement for home loans paid to US mortgage giants Fannie Mae & Freddie Mac (part of FHFA settlement)
- 19 September – $920m paid over “London whale” loss to US & UK regulators; an additional $100m fine was paid to the Commodity Futures Trading Commission on 16 October
Another $7bn will be paid to settle federal and state civil claims relating to misleading mortgage securities sold by the bank, Some of that will be given to investors who lost money.
The remaining $2bn paid to the US government as a fine.
“The conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown,” said Attorney General Eric Holder in a statement.
Although the settlement effectively concludes the US government’s civil investigation into the bank, a criminal investigation by the Department of Justice is ongoing.
JP Morgan has worked hard to put the mortgage crisis of 2006-2007 behind it.
There are a lot of banks that are actually pretty well managed — J.P. Morgan being a good example”
US President Barack Obama2009
The bank has been under investigation for selling low-quality mortgage-backed securities to investors who were unaware that the securities often contained faulty mortgages.
According to the statement from the Department of Justice: “JPMorgan employees knew that the loans in question did not comply with those guidelines and were not otherwise appropriate for securitization, but they allowed the loans to be securitized – and those securities to be sold – without disclosing this information to investors.”
A large portion of the mortgages under investigation by authorities were bought by JP Morgan when it acquired banks Bear Stearns and Washington Mutual at the height of the financial crisis of 2008-2009.
“Today’s settlement covers a very significant portion of legacy mortgage-backed securities-related issues for JPMorgan Chase, as well as Bear Stearns and Washington Mutual,” said Mr Dimon.
On a call to discuss the fine, JP Morgan Chief Financial Officer Marianne Lake said that 80% of the bad loans at the centre of the fine can be attributed to Bear Stearns and Washington Mutual.