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JP Morgan Chase Agrees to $13B Settlement

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Updated: 11/19/2013 9:21 am
WASHINGTON (CBS) - The Justice Department and JPMorgan Chase & Co. have reached agreement on all issues in a $13 billion settlement of a civil inquiry into the company's sales of low-quality mortgage-backed securities that collapsed in value during the 2008 financial crisis, CBS News has confirmed.

The settlement is the largest ever reached between the government and a corporation. It eclipses the record $4 billion levied on the huge oil company BP in January in the worst offshore oil spill in U.S. history.

Details of the settlement were leaked and widely reported a few weeks ago. The finalized deal is expected to be announced Tuesday.

A person close to the talks told CBS News that the settlement addresses all civil issues in the case, but the Justice Department retains the right to continue a criminal investigation being conducted by the U.S. Attorney's Office in Sacramento, Calif.

Just last Friday, the company announced it had reached a $4.5 billion settlement with 21 major institutional investors over mortgage-backed securities issued by JPMorgan and Bear Stearns Cos. between 2005 and 2008. The investors, which include Goldman Sachs, said the bank deceived them about the quality of high-risk mortgage securities.

In the new settlement, the nation's biggest bank will pay more than $6 billion to compensate investors, pay $4 billion to help struggling homeowners and pay the remainder as a fine.

The deal is the latest chapter in the burst of the housing bubble in 2007 when bundles of mortgages sold by JPMorgan and other financial institutions left investors with billions of dollars in losses.

JPMorgan has said that most of its mortgage-backed securities came from Bear Stearns and Washington Mutual Inc., troubled companies that JPMorgan acquired in 2008.

As part of the $6 billion to investors, $4 billion will resolve government claims that JPMorgan misled mortgage finance giants Fannie Mae and Freddie Mac about risky mortgage securities the bank sold them before the housing market crashed. That part of the deal was announced on Oct. 25. Fannie and Freddie were bailed out by the government during the crisis and are under federal control.

The Justice Department and the banks reached a tentative settlement in mid-October on the $13 billion, but the negotiations hit a stumbling block. As part of any settlement, JPMorgan wanted to be able to collect money from a receivership involving Washington Mutual Inc., the biggest U.S. savings and loan. The S&L failed and was purchased by JPMorgan. The Federal Deposit Insurance Corp., which maintains stability and public confidence in the banking system, said JPMorgan should be responsible for any liabilities regarding the Washington Mutual acquisition.

The $13 billion JPMorgan settlement amount is only about half of its record 2012 net income of $21.3 billion, or $5.20 a share, which made it one of the most profitable U.S. banks last year.

Mounting legal costs from government proceedings pushed JPMorgan to a rare loss in this year's third quarter, the first under CEO Jamie Dimon's leadership. The bank reported Oct. 11 that it set aside $9.2 billion in the July-September quarter to cover the string of legal cases against the bank. JPMorgan said it has placed $23 billion in reserve to cover potential legal costs.

CBS Interactive Inc. All Rights Reserved.
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