JP Morgan Chase has offered to pay billions of dollars to settle investigations into its sale of residential mortgage-backed securities prior to the financial crisis, news reports said on Wednesday.
JP Morgan Chase, the largest US bank by assets, faces charges of wrongdoing in the two years prior to the crisis that began in late 2007. Investigators are probing whether the bank misled some investors about the quality of the mortgages behind the security offerings.
The bank reportedly has offered to pay $3 billion to end the probes, according to the Wall Street Journal, while the Financial Times reported the offer was $4 billion. The sums however are too low for the US Justice Department, according to a person familiar with the case quoted in the Wall Street Journal.
The amount offered by the investment bank is as high as $7 billion, according to the New York Times. None of the parties involved in the negotiations would comment, according to the reports.
The package is being described as a “pay for peace” deal aimed at ending numerous cases, both criminal and civil, filed by the federal government as well as state governments. The claims add up to $10 billion, the Financial Times reported, and another claim is expected to be filed this week by California’s state prosecutors.
The questionable activities involve mortgage-backed securities.
Such investments involved sub-prime mortgages that were bundled together before they were sold. While they offered high returns, they also carried huge risk when lenders failed to pay. They played a large role in the collapse of the housing market and ultimately in the global recession.
The accusations against many large banks is that they allegedly misled investors about the shaky nature of the loans.
Some other institutions, most notably Bank of America, have settled similar cases. Bank of America in May agreed to pay $1.7 billion to its bond insurer to end a dispute over responsibility for losses during the 2007-2009 financial crisis. The bank received a 5-per-cent stake in the bond insurer in return.
JP Morgan Chase, once considered among the US’s most reputable financial institutions, recently has agreed to pay numerous settlements to end legal troubles. Just last week US and British authorities said they had fined JP Morgan a combined $920 million over the so-called London Whale scandal involving $6.2 billion of trading losses in 2012.