JPMorgan is close to agreeing a record $13 billion (£8.07bn) settlement with the US Justice Department over the company's sale of low-quality mortgage-backed securities that blew up during the financial crisis.
The deal is the largest ever reached between the government and a corporation, eclipsing the record $4 billion (£2.48bn) levied on oil giant BP in January in the worst offshore oil spill in U.S. history.
The nation's biggest bank will pay more than $6 billion (£3.73bn) to compensate investors, $4 billion (£2.48bn) to help struggling homeowners and pay the remainder as a fine. An independent monitor will be appointed to oversee the assistance to homeowners.
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, troubled companies that JPMorgan acquired in 2008.
Still to come is a decision on whether the Justice Department will file criminal charges against JPMorgan. An investigation is under way by the U.S. Attorney's office in Sacramento, California.
As part of the $6 billion to investors, $4 billion (£2.48bn) 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. Fannie and Freddie were bailed out by the government during the crisis and are under federal control.
The $13 billion JPMorgan settlement amount is only about half of its record 2012 net income of $21.3 billion (£13.23bn), 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 set aside $9.2 billion (£5.71bn) in the July-September quarter to cover the string of legal cases against the bank. JPMorgan said it has placed $23 billion (£14.28bn) in reserve to cover potential legal costs.
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On Friday, the company announced it had reached a $4.5 billion (£2.79bn) settlement with 21 major institutional investors over mortgage-backed securities issued by JPMorgan and Bear Stearns between 2005 and 2008. The investors, which include Goldman Sachs, said the bank deceived them about the quality of high-risk mortgage securities.
