WASHINGTON -- JPMorgan Chase would pay a record $13 billion under a tentative agreement to resolve federal allegations that it knowingly sold faulty mortgage securities that contributed to the financial crisis, a person familiar with the talks said yesterday.
If finalized, the deal with the Justice Department would be the largest penalty ever paid by a single company, representing a tremendous win for the government after years of public criticism over its struggle to hold Wall Street accountable for its crisis-era misdeeds.
It also would leave the nation's largest bank and its executives still at risk of criminal prosecution, a humbling concession.
"JPMorgan had been trying to get amnesty for criminal prosecution," the person familiar with the negotiations said. But Attorney General Eric Holder, in a phone call earlier this month with JPMorgan CEO Jamie Dimon, said "that was a nonstarter," the person said.
Officials at JPMorgan and Justice declined to comment.
JPMorgan emerged from the financial crisis relatively unscathed but has struggled to shake off the vestiges of that era.
The deal also would end a California probe, as well as a separate lawsuit filed by New York State Attorney General Eric T. Schneiderman last October over shoddy mortgage securities. Many of the probes stem from JPMorgan's Bear Stearns unit.
JPMorgan and Justice have been negotiating a potential deal for months, but talks heated up a few weeks ago. The stakes are high for both sides.
Pulling off a record settlement would be a significant accomplishment for Holder. Justice has levied multimillion-dollar fines against big banks, including HSBC and Barclays, but to lawmakers and consumer advocates, those penalties are tantamount to a slap on the wrist.
"Resolving the mortgage cases for $13 billion is a major win for the DOJ, particularly since the deal only applies to the civil case," said Thomas Gorman, a securities lawyer at the Dorsey & Whitney law firm. "It also brings to account a major Wall Street player for the market crisis, something enforcement officials and the public have been looking for."
JPMorgan is urgently attempting to wrap up a barrage of investigations into its conduct in recent years, leading the bank to report its first quarterly loss in nearly a decade last week. Dimon, once considered the sage of Wall Street, has taken a conciliatory tone with regulators and has called the legal fallout "painful" for him and the company.
The deal could be finalized soon, said a person familiar with the negotiations who was not authorized to speak publicly. Justice and JPMorgan are hammering out the final details, including a statement listing what the company did wrong.
JPMorgan is among the 18 financial firms sued by the Federal Housing Finance Agency in 2011 to recoup losses sustained by Fannie Mae and Freddie Mac from securities bundled with poorly underwritten home loans. To date, the agency has settled three of those cases, including a $885 million deal with UBS in July.