Is The JPMorgan Settlement Unfair?

The details are still being worked out, but JPMorgan Chase and the Justice Department have agreed to a $13 billion settlement that will close out numerous lawsuits. About $3 billion will go to compensate investors who lost money on securities from banks that JPMorgan acquired during the financial crisis. Federal prosecutors have agreed not to seek punitive damages against JPMorgan for losses related to those deals.

STEVE INSKEEP, HOST:

Now let's follow up on the JPMorgan case. As we told you earlier this week, the largest bank in the United States is close to paying the largest-ever civil settlement with the Justice Department.

JPMorgan Chase has agreed to pay $13 billion fine to resolve a number of investigations related to the mortgage crisis.

But, as NPR's Dan Bobkoff reports, some think the government is unfairly targeting JPMorgan.

DAN BOBKOFF, BYLINE: The storyline from JPMorgan Chase's perspective is that in the dark days of 2008: it was the white knight, the one bank big enough and rich enough to swoop in and buy up the failing investment bank Bear Stearns and the already-failed Washington Mutual. Then-treasury secretary Henry Paulson, and then New York president Tim Geithner pushed CEO Jamie Dimon hard to make the deals. This is Paulson on CNBC recently.

HENRY PAULSON: When Jamie stepped up and agreed to buy Bear Stearns, and when Tim Geithner and I were pleading with him to do that, Bear Stearns would have gone down if JPMorgan hadn't acquired it.

BOBKOFF: The praise isn't just from Paulson. Superstar investor Warren Buffet told Bloomberg that Dimon helped the entire economy with what he did. Even Democratic former Congressman Barney Frank has said companies should not be punished for deals the government pressures them into.

On a conference call with investors earlier this month, Dimon suggested he was surprised to be facing such a big fine for mortgage misdeeds that happened at Bear and WaMu.

JAMIE DIMON: This is very painful for the company. And Bear Stearns we did do quickly. We didn't anticipate that we'd be paying anything for prior losses for Bear Stearns. You know, I...

BOBKOFF: So, is this $13 billion settlement unfair?

JPMorgan estimates that 80 percent of the losses from bad mortgages come from Bear Stearns and WaMu. And, Dimon said he doesn't believe his bank is responsible for anything that happened at Washington Mutual before JPMorgan bought it.

DIMON: But that does not mean that people can't come after you. So, that was a bit of a lesson learned too.

DEAN BAKER: He may not have anticipated having to make this sort of settlement, but he surely must have known that there would be substantial risk.

BOBKOFF: Dean Baker is co-director of the Center for Economic and Policy Research. He says JPMorgan didn't buy Bear and WaMu as charity.

BAKER: They did this because they thought it would help their business.

BOBKOFF: And, JPMorgan did get a lot out of the deals: a big banking presence on the West Coast from WaMu, to name just one. William Cohan is the author of "House of Cards," a book about the crisis.

WILLIAM COHAN: They would do both of those deals again, especially at the prices that they paid for them, even knowing that they were saddled with this $13 billion fine.

BOBKOFF: That fine will likely include billions to help repay institutional investors who lost money on bad mortgage bonds issued by Bear, WaMu and JPMorgan. It's also reportedly going to provide billions to homeowners who suffered in the housing collapse.

But published reports suggest that less of the settlement will be about WaMu and Bear than many expected. The punitive portion of the deal - roughly $2-3 billion in straight fines will likely be limited to the bad loans JPMorgan itself issued leading up to the collapse.

COHAN: And, that's the part that isn't going to get, you know, Jamie Dimon a whole lot of sympathy.

BOBKOFF: By limiting the punitive fines to JPMorgan's actions, the Justice Department is likely trying to head off criticism that it's unfairly targeting the bank for the companies it acquired under pressure.

All told, the settlement will resolve numerous investigations, including in California and New York.

New York Attorney General Eric Schneiderman says in a statement that banks must be held accountable for misconduct. That includes, he says, institutions that were voluntarily bought and absorbed by banks that still exist.

And, the Justice Department is negotiating a rare admission of wrongdoing from JPMorgan. Cohan says other big banks are watching closely.

COHAN: I'm sure that this will likely be the template for settling with all the big banks in Wall Street that were heavily involved in the mortgage market.

BOBKOFF: The settlement could come as early as this week.

Dan Bobkoff, NPR News, New York.

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