JPMorgan's $11 Billion Settlement is Second Largest Ever in Banking History


After years of ongoing investigations, JPMorgan might finally be on its way out of a lengthy lawsuit that has hurt not only its funds, but also its reputation. According to a government source on Wednesday. negotiations have begun regarding an $11 billion national settlement for the nation's largest bank. This would be the second largest bank settlement in U.S. history, and government officials are likely to push for an even higher amount. 

The Department of Justice has already taken the lead in demanding $7 billion in cash and $4 billion in consumer relief from JPMorgan, which earned a net income of $21.3 billion last year and is expecting even larger earnings this year. This comes only one week after JPMorgan agreed to pay $920 million to three U.S. regulators and one British regulator for failing to properly oversee trading that led to a $6 billion loss for the company last year. 

This may sounds like a lot of money, but more concerning to the bank is its public image. In order to sustain its reputation, it needs to get out of this lawsuit and into recovery as soon as possible. 

Jonathan Macey, a corporate law professor at Yale Law School, said in reference to the current negotiations, "The government is attacking very weak prey now."

Macey's statement couldn't be more accurate. Because the government knows it has the upper hand in this settlement, it is likely to push for a higher price point. In this case, the government is well aware not only of JPMorgan's profit margins and ability to pay, but also its desperation to end this lawsuit as quickly as possible in order to maintain its image.

The alleged violations go back to pre-recession times, when many big banks, including Bank of America Corp., Citigroup, and Goldman Sachs, allegedly conducted questionable sales of mortgage securities to their investors. These banks were accused of misleading their investors regarding mortgage bond sales by failing to disclose certain risks involved in these purchases.

One of these banks, Bank of America Corp., was accused by the Department of Justice last month of civil fraud for misleading its investors in the sale of $850 million worth of mortgage bonds in 2008, which led investors to lose an estimated $100 million from the deal. The SEC simultaneously filed a similar lawsuit against Bank of America for the same claim.

If JPMorgan is lucky, it will be able to reach a settlement with federal and state officials for $11 billion. Don't hold your breath for a lower amount.