The story of banking giant JPMorgan Chase’s $13 billion settlement has been in heavy rotation on network and cable news outlets this week, as it should be. This settlement is the largest ever between a single company and the U.S. government. What began as a 2012 task force investigation into alleged misconduct in the mortgage-backed securities market has resulted in this record-breaking settlement.
Nine billion dollars of the settlement is earmarked for fines and penalties. Four billon of the settlement has been set aside to aid struggling homeowners. Four billion is a lot of money, but to put that $4 billion in perspective, it is worth noting that JPMorgan Chase has $2.4 trillion in assets.
JPMorgan has been riding pretty high since the financial crisis, but this settlement may mark a turning point for the company. It follows three years of record profits for JPMorgan. The company had a $32 billion operating income in 2012. In its recent earnings report, JPMorgan said its total reserve for legal issues is currently $23 billion, and those funds, some of which had been set aside last quarter, caused JPMorgan to record its first quarterly loss since 2004. U.S. Attorney General Eric Holder and JPMorgan CEO Jamie Dimon spoke Friday, and even though they were able to reach a settlement, JPMorgan is not off the hook yet. Billions of dollars could not buy the bank the ability to avoid criminal penalties. It is suspected that as part of the settlement, the bank will cooperate with an ongoing criminal investigation.
With this settlement, the government and JPMorgan Chase have entered into uncharted waters. The Washington Post recently said this settlement may be a model for how future banking settlements may be structured. Banking giants Credit Suisse and Bank of America are still under investigation by the same task force that investigated JPMorgan Chase, and the Federal Housing Finance Agency previously filed suit against 17 banks for misconduct similar to those alleged to have been taken by JPMorgan. With so much money at stake, let’s hope this $13 billion settlement does set a good example and send a very clear message to the titans of Wall Street.
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