JPMorgan Chase to pay $4.5 bln in mortgage security deal

Reuters

By Karen Freifeld

NEW YORK, Nov 15 (Reuters) - JPMorgan Chase & Co said on Friday it agreed to pay $4.5 billion to settle claims byinvestors who lost money on mortgage-backed securities beforethe collapse of the U.S. housing market.

The bank reached the agreement with 21 institutionalinvestors in 330 residential mortgage-backed securities trustsissued by JPMorgan and Bear Stearns, which it took over duringthe financial crisis, according to the bank and lawyers for theinvestors.

The deal still has to be accepted by seven trusteesoverseeing the securities holdings, the parties said.

The settlement does not include trusts issued by WashingtonMutual, which JPMorgan also acquired.

The deal is separate from the preliminary $13 billionsettlement JPMorgan has reached with the U.S. government thatwould resolve a raft of actions over residential mortgage-backedsecurities.

"This settlement is another important step in J.P. Morgan'sefforts to resolve legacy related RMBS matters," the bank saidin a statement.

The bank said it believes reserves it has built will coverthe expense of "this and any remaining" mortgage securitieslitigation.

The 21 investors include BlackRock Inc, Metlife Inc, Allianz SE's Pacific Investment Management Company, the TCW Group and Bayerische Landesbank.

Under the agreement, the trustees have until Jan. 15 toaccept the offer, which may be extended for another 60 days,according to JPMorgan and Gibbs & Bruns, the Houston law firmthat represented the institutional investors.

Kathy Patrick of Gibbs & Bruns called the deal "an importantmilestone" in a three-year effort by the group of 21bondholders.

The seven trustees over the bonds include Bank of New YorkMellon Corp. Kevin Heine, a spokesman for the Bank of NewYork Mellon, said the bank would "evaluate the proposedsettlement along with the other trustees."

If accepted, the deal would resolve claims that JPMorgan andBear Stearns misrepresented the mortgages underlying thesecurities, JPMorgan said.

The settlement also would resolve servicing claims on alltrusts issued by the bank and Bear Stearns between 2005 and2008.

JPMorgan is the third bank to strike a deal with investorsover shoddy mortgage-backed securities issued in the run-up tothe financial crisis.

Bank of America Corp agreed to a $8.5 billion settlement inJune 2011 with 22 institutional investors. That deal is stillawaiting court approval.

In 2012, bondholders in trusts issued by Ally Financial'sbankrupt former mortgage lending arm, Residential Capital, wonan agreement to bring an $8.7 billion claim, although that waslater reduced to $7.3 billion.

Gibbs & Bruns has represented investors in all threesettlements. In 2011, the law firm said its investor clients hadinstructed trustees overseeing $95 billion of securities issuedby JPMorgan, Bear Stearns and Washington Mutual to investigatewhether the bonds were backed by ineligible mortgages.

Washington Mutual is not included in the deal because of litigation between the Federal Deposit Insurance Corp andJPMorgan over who is responsible for losses at the formermortgage lender, according to a person familiar with the matter.

The exclusion explains the difference between the amount ofthe announced deal and reports last month that JPMorgan was nearan agreement with the investors for close to $6 billion, saidanother person familiar with the negotiations.

The separate tentative $13 billion settlement betweenJPMorgan and the U.S. government also has been complicated bythat dispute, according to other sources.

JPMorgan CEO Jamie Dimon has vowed to resolve legal andregulatory issues that have been weighing heavily on the companysince May 2012.

In October, JPMorgan reported its first quarterly loss underDimon as it recorded more than $9 billion of expenses to buildits litigation reserves.

JPMorgan is the biggest U.S. bank by assets.

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