JP Morgan is attempting to strike a deal with institutional investors over claims it mis-sold mortgage-backed securities in a move that could see the Wall Street banking giant pay out $6bn (£4bn).
However, JP Morgan's separate $13bn settlement with the US government over the mis-selling of mortgage-backed bonds in the run-up to the financial crisis could cost it less than initially expected, as it emerged yesterday that part of the deal could be tax deductible. No formal agreement between JP Morgan and the institutional investors – which include BlackRock and Neuberger Berman – is believed to have been reached, but a source familiar with talks told Reuters the final deal could be worth up to $6bn.
BlackRock and Neuberger Berman have already settled similar claims for losses on mortgage-backed bonds with Bank of America's troubled Countrywide business for more than $8bn.
The claims related to bonds sold by JP Morgan itself and by Bear Sterns and Washington Mutual, which it bought during the financial crisis.
Meanwhile, it has emerged that the bank might have to pay less than initially thought once the Justice Department settlement is finalised.
The settlement, which would still leave the bank vulnerable to criminal claims, would bring various civil investigations to an end and is expected to be worth about $13bn. Of that, only $2bn-$3bn is likely to be a fine, while $4bn worth of relief for borrowers would be tax deductible. It is possible that a portion of the remainder will also be tax deductible, leaving JP Morgan will a bill of $9bn or less.
The bank's legal headaches have once again revived the debate over whether JP Morgan is too big and too complex a business, and refocused attention on Jamie Dimon, the bank's combative chief executive, who thus far has managed to see off demands from a minority of shareholders that he should give up his dual role as chairman.
Banks in the spotlight: Eurozone test
Eurozone banks face a year-long assessment of their balance sheets starting next month and finishing with a heightened stress test, the European Central bank announced yesterday. The tests on 130 banks will first look at their transparency in unearthing potential bad loans or risky assets.
This will be followed by the stress test, which will simulate a crisis in the financial system. The ECB's president Mario Draghi said the assessment should "strengthen private-sector confidence in the soundness of euro area banks and the quality of their balance sheets". Banks could be forced to repair finances by raising capital.