JPMorgan Chase, the nation’s biggest bank by assets, is reportedly in final negotiations to settle multiple civil cases with the U.S. Justice Department involving mortgage lending. The company would pay $13 billion to clear many of its legal liabilities. The amount reportedly includes $4 billion to assist struggling homeowners who hold over-priced mortgages in markets hard-hit by the housing crash. Another $9 billion would go to settling charges that mortgage-backed securities assembled and marketed by JPMorgan, and also by financial firms it purchased at the height of the financial crisis, were misrepresented as less risky than they in fact were.
JPMorgan Chase took over investment bank Bear Stearns and savings-and-loan Washington Mutual, in 2008, under strong urging from federal banking regulators who were worried that their collapse would endanger the global financial system.
Banking consultant Bert Ely says that at this point, five years after the financial crisis began, government prosecutors should be circumspect about holding JPMorgan responsible for actions that it -- and its executives -- were not directly responsible for.
“I think the government needs to be careful about the extent to which it pursues JPMorgan Chase either civilly or criminally over actions that happened in those companies,” Ely says.
Ely speculates that JPMorgan, as well as its chairman and CEO, Jamie Dimon, will garner support from market players for being targeted by the Justice Department over actions engaged in by companies that it acquired.
“There might be a lot of sympathy in corporate America on what they are having to put up with,” says Ely. “There’s probably a feeling among some that we’re almost seeing a government lynching.”
Economist Peter Morici at the University of Maryland warns there could be a chilling effect from these multi-billion-dollar legal settlements.
“We will have another financial crisis,” says Morici. “The next time around the government is going to want bigger banks to take over smaller banks, to keep depositors whole. Will the bigger banks be willing, with this history? The lesson is: don’t cooperate with federal authorities in a crisis.”
But former Treasury Secretary Hank Paulson has stated that even though the government urged JPMorgan to take over Bear Stearns and Washington Mutual, Jamie Dimon and other top executives knew the government couldn’t guarantee their company against legal liabilities when it acquired those failing financial institutions.