new York: JPMorgan Chase & Co announced Friday that it agreed to pay $ 4.5 billion to settle claims from investors who lost money on mortgage-backed securities before the collapse of the US real estate market.
The bank struck a deal with 21 institutional investors in 330 residential mortgage-backed securities trusts issued by JPMorgan and Bear Stearns, which it took over during the financial crisis, according to the bank and lawyers for the investors.
The deal has yet to be accepted by seven directors overseeing the titles, the parties said.
The settlement does not include trusts issued by Washington Mutual, which JPMorgan also acquired.
The deal is separate from the preliminary $ 13 billion settlement JPMorgan reached with the US government that would resolve a series of actions on the mortgage-backed securities.
“This settlement is another important step in JP Morgan’s efforts to address issues with legacy RMBS,” the bank said in a statement. The bank said it believed the reserves it had built up would cover the expenses of “this and any other” mortgage-backed securities litigation.
The 21 investors include BlackRock Inc, Metlife Inc, Pacific Investment Management Company of Allianz SE, the TCW Group and Bayerische Landesbank.
Under the deal, the trustees have until Jan. 15 to accept the offer, which can be extended for an additional 60 days, according to JPMorgan and Gibbs & Bruns, the Houston law firm that represented the institutional investors.
Kathy Patrick of Gibbs & Bruns called the deal a “milestone” in a three-year effort by the group of 21 bondholders.
The seven bond trustees include Bank of New York Mellon Corp. Bank of New York Mellon spokesman Kevin Heine said the bank would “assess the proposed settlement with the other trustees.”
If accepted, the deal would resolve allegations that JPMorgan and Bear Stearns distorted the mortgages underlying the securities, JPMorgan said.
The settlement would also resolve service claims on all trusts issued by the bank and Bear Stearns between 2005 and 2008.
JPMorgan is the third bank to close a deal with investors on low-quality mortgage-backed securities issued in the run-up to the financial crisis.
Bank of America Corp reached an $ 8.5 billion settlement in June 2011 with 22 institutional investors. This agreement is still awaiting court approval.
In 2012, bondholders in trusts issued by Ally Financial’s former bankrupt mortgage arm, Residential Capital, secured an agreement to file a claim for $ 8.7 billion, although that amount was then reduced to $ 7.3 billion.
Gibbs & Bruns represented investors in all three settlements. In 2011, the law firm said its investor clients tasked trustees overseeing $ 95 billion of securities issued by JPMorgan, Bear Stearns and Washington Mutual to determine whether the bonds were backed by ineligible mortgages.
Washington Mutual is not included in the deal due to an ongoing dispute between the Federal Deposit Insurance Corp and JPMorgan over who is responsible for the losses of the former mortgage lender, according to a person familiar with the matter.
The separate $ 13 billion interim settlement between JPMorgan and the U.S. government has also been complicated by this dispute, other sources say.
CEO of JPMorgan Jamie Dimon has been committed to resolving the legal and regulatory issues that have weighed heavily on the company since May 2012.
In October, JPMorgan reported its first quarterly loss under Dimon, having spent more than $ 9 billion in spending to build its litigation reserves.
JPMorgan is the largest US bank in terms of assets. REUTERS
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