JPMorgan agrees $4.5bn payout over mortgage security mis-selling claims

Deal follows preliminary agreement with US government which could see it pay out $13 billion over bad mortgage investments

US banking giant JPMorgan Chase & Co. has agreed to pay $4.5 billion (£2.8 billion) to investors over claims it deceived them over bad mortgage investments in the run up to the financial crisis.

The settlement is with 21 major institutional investors, including competitor Goldman Sachs, BlackRock Financial Management, and Metropolitan Life Insurance Co.

The mortgage-backed securities were sold by JPMorgan, the biggest bank in the US, and Bear Stearns between 2005 and 2008.

Mortgage-related investments were a key factor in the financial crisis, which began when the housing market collapsed between 2006 and 2008 and millions of homeowners defaulted on high-risk mortgages.

That led to billions of dollars in losses for investors who bought securities created from bundles of mortgages from JPMorgan and other big Wall Street banks.

The bank has previously apologised to shareholders over the trading losses. It is however understood to argue that many of the securities were sold by two companies which it purchased amid the financial crisis. 

The announcement comes as the bank reached a preliminary deal last month with the US government which could see it pay out $13 billion (£8 billion) over mortgage securities.

JPMorgan said it has placed a total of $23 billion (£14.3 billion) in reserve to cover potential costs so payouts will not depress future profits.

It is yet to be decided whether the Justice Department will file criminal charges against JPMorgan over mortgage securities. An investigation by the US Attorney's office in California is ongoing.