NEW YORK (Reuters) - JPMorgan Chase & Co's possible $11 billion settlement of government mortgage probes has been complicated by a dispute with the Federal Deposit Insurance Corp over responsibility for losses at the former Washington Mutual Inc, said people familiar with the matter.
The dispute, between the largest U.S. bank and the FDIC, could leave the federal agency on the hook for billions the bank is expected to pay as part of the settlement and substantially reduce the amount of the penalty JPMorgan actually pays to the government, some analysts said.
JPMorgan is seeking a "global" settlement of federal and state mortgage-related probes that could involve a payment of $7 billion in cash plus $4 billion for consumers, according to other people familiar with negotiations.
Last week, Chief Executive Jamie Dimon met with U.S. Attorney General Eric Holder to discuss a possible global settlement, and a source said the broad outlines could be reached any day. JPMorgan is also in talks with the U.S. Securities and Exchange Commission, the U.S. Department of Housing and Urban Development and the New York Attorney General's office.
JPMorgan, which acquired Washington Mutual from the FDIC for $1.9 billion at the height of the financial crisis, has disputed its responsibility to cover losses incurred by investors on the failed thrift's mortgage securities.
The bank has said in corporate filings and court proceedings in recent years that its liability is limited when it comes to reimbursing investors who lost money on Washington Mutual mortgage-backed securities.
The FDIC is disputing the matter in court.
Some fear the FDIC, under pressure from the Justice Department to join a global settlement, might agree to assume liability, a move that would effectively force another government agency to absorb billions of dollars in losses.
Spokesmen for both JPMorgan Chase and the FDIC declined comment. A Justice Department spokeswoman was not immediately available for comment.
"If the FDIC were to indemnify JPM as part of the government deal, it would likely reduce the rumored $11 billion by about $3.5 billion," said Joshua Rosner, managing director of Graham Fisher, an independent research consultancy. "That would be an absurd outcome."
An indemnification, Rosner said, would put JPMorgan's losses back on the FDIC, five years' after JPMorgan and the FDIC claimed that the transaction came at no cost to the FDIC.
Rosner estimates that an indemnification deal for JPMorgan would force the FDIC to assume $3.5 billion in claims against JPMorgan by the Federal Housing Finance Agency over Washington Mutual mortgage securities. Sources have said the FHFA claims against Washington Mutual are part of the global settlement negotiations.
John McDonald, a senior analyst at Bernstein Research, said in a research report the issue may be tough to resolve, because the agreement JPMorgan signed with the FDIC when it bought Washington Mutual does not specify which party - JPMorgan or the FDIC - is responsible for Washington Mutual's alleged breaches of representations and warranties in securitization agreements.
The FHFA sued JPMorgan in September 2011, accusing the bank of misleading Fannie Mae and Freddie Mac in their purchase of billions of dollars' worth of risky mortgage securities.
The regulator said JPMorgan falsely represented that the mortgages underlying the securities met underwriting standards. The securities were sponsored or underwritten by the bank, or two other companies it acquired, Bear Stearns Cos and Washington Mutual Bank.
The dispute has played out in a 2009 lawsuit filed by Deutsche Bank National Trust Co. claiming $6 billion to $10 billion in damages from Washington Mutual's alleged breach of representations and warranties in mortgages pooled into securities.
The FDIC has claimed it should be dismissed from the lawsuit and Deutsche Bank's claims should be against JPMorgan.
(Additional reporting by David Henry and Jonathan Stempel; Editing by Bob Burgdorfer)
Our 2024 Coverage Needs You
It's Another Trump-Biden Showdown — And We Need Your Help
The Future Of Democracy Is At Stake
Our 2024 Coverage Needs You
Your Loyalty Means The World To Us
As Americans head to the polls in 2024, the very future of our country is at stake. At HuffPost, we believe that a free press is critical to creating well-informed voters. That's why our journalism is free for everyone, even though other newsrooms retreat behind expensive paywalls.
Our journalists will continue to cover the twists and turns during this historic presidential election. With your help, we'll bring you hard-hitting investigations, well-researched analysis and timely takes you can't find elsewhere. Reporting in this current political climate is a responsibility we do not take lightly, and we thank you for your support.
Contribute as little as $2 to keep our news free for all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
The 2024 election is heating up, and women's rights, health care, voting rights, and the very future of democracy are all at stake. Donald Trump will face Joe Biden in the most consequential vote of our time. And HuffPost will be there, covering every twist and turn. America's future hangs in the balance. Would you consider contributing to support our journalism and keep it free for all during this critical season?
HuffPost believes news should be accessible to everyone, regardless of their ability to pay for it. We rely on readers like you to help fund our work. Any contribution you can make — even as little as $2 — goes directly toward supporting the impactful journalism that we will continue to produce this year. Thank you for being part of our story.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
It's official: Donald Trump will face Joe Biden this fall in the presidential election. As we face the most consequential presidential election of our time, HuffPost is committed to bringing you up-to-date, accurate news about the 2024 race. While other outlets have retreated behind paywalls, you can trust our news will stay free.
But we can't do it without your help. Reader funding is one of the key ways we support our newsroom. Would you consider making a donation to help fund our news during this critical time? Your contributions are vital to supporting a free press.
Contribute as little as $2 to keep our journalism free and accessible to all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
As Americans head to the polls in 2024, the very future of our country is at stake. At HuffPost, we believe that a free press is critical to creating well-informed voters. That's why our journalism is free for everyone, even though other newsrooms retreat behind expensive paywalls.
Our journalists will continue to cover the twists and turns during this historic presidential election. With your help, we'll bring you hard-hitting investigations, well-researched analysis and timely takes you can't find elsewhere. Reporting in this current political climate is a responsibility we do not take lightly, and we thank you for your support.
Contribute as little as $2 to keep our news free for all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. Would you consider becoming a regular HuffPost contributor?
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. If circumstances have changed since you last contributed, we hope you'll consider contributing to HuffPost once more.
Support HuffPostAlready contributed? Log in to hide these messages.