20 Oct 2013

JP Morgan 'may pay' record $13b fine

9:20 pm on 20 October 2013

US banking giant JP Morgan is set for a record $13 billion fine to settle investigations into its mortgage-backed securities, US media reports say.

A tentative deal is believed to have been reached in talks with senior US justice department officials.

The sale of overvalued mortgage-backed securities was blamed for the near-collapse of the banking system in 2007.

The BBC reports that in the run-up to the financial crisis, sophisticated financial products known as mortgage-backed securities were created by many investment banks.

These special bonds contained a mix of investments but at their heart were supposed to be risk-free home loans.

What JP Morgan is alleged to have done was sell the mortgage-backed assets knowing full well that many of the home loans were in fact very risky.

The mortgage-backed assets are widely thought to have played a central role in the near collapse of the banking system when banks realised in 2007 that many of their assets were worth a fraction of their official book value.

The tentative deal to pay the $13 billion fine to the justice department was reached during the talks on Friday, between JP Morgan lawyers with US Attorney General Eric Holder and his deputy Tony West, the Wall Street Journal said, citing officials familiar with the decision.

The New York Times reported that the investment bank was nearing the agreement, although final details are still being discussed.

The BBC reports neither the justice department nor the bank was available for comment.

If confirmed, it would be the biggest settlement of its kind ever paid by an American company.

The $13bn sum is said to include $9bn in fines and a further $4bn in relief for struggling homeowners.