JPMorgan Chase & Co.’s proposed terms for ending state and federal investigations of the bank’s mortgage bond sales were rejected by the Justice Department this week, two people familiar with the negotiations said Tuesday.
The Justice Department told the bank it won’t agree to language the firm submitted Sunday, said the sources, who asked not to be named because the talks are private. The government won’t let JPMorgan seek reimbursement from the Federal Deposit Insurance Corp. for part of the accord and opposed the bank’s bid to avoid criminal liability in cases that don’t involve residential mortgage-backed securities, one person said.
JPMorgan, led by Chief Executive Officer Jamie Dimon, is trying to complete a $13 billion settlement outlined in talks earlier this month. Part of the deal was finished with the Federal Housing Finance Agency last week, as the New York-based bank agreed to pay $4 billion to settle several claims that it sold faulty mortgage bonds to Fannie Mae, the Federal National Mortgage Association, and Freddie Mac, the Federal Home Loan Mortgage Corp.
The Justice Department and JPMorgan, the biggest U.S. bank, also differ on whether to include an additional $1.1 billion payment in the Federal Housing Finance Agency pact as part of the total settlement, one person said.
Brian Marchiony, a company spokesman, declined to comment on the talks.
Attorney General Eric Holder told the bank the department wouldn’t let JPMorgan seek reimbursement from the FDIC after resolving liability stemming from the failure of Washington Mutual Inc., the person said. Washington Mutual, which ranked among the biggest subprime mortgage lenders, collapsed during the 2008 credit crisis, and JPMorgan acquired the Seattle-based company’s banking assets.
JPMorgan has said the FDIC agreed to cover some of the resulting losses, a claim the agency rejects. The bank estimates its liabilities from Washington Mutual to be about $4 billion, the person said.
While discussions remain open, an agreement may not be reached this week, one person said.
Last week’s deal with the finance agency included $1.1 billion to settle claims that the bank sold Fannie Mae and Freddie Mac defective mortgages that they packaged into their own securities.
JPMorgan contends that amount is part of the broader $13 billion pact, one person said on the day that agreement was announced, while the government believes it would be in addition to the $13 billion, another person said.
The finance agency case is Federal Housing Finance Agency v. JPMorgan Chase & Co., 11-06188, U.S. District Court, Southern District of New York (Manhattan).
Business, Pages 25 on 10/30/2013