- Posted October 14, 2013 by
U.S. Deal With JPMorgan Followed a Crucial Call
An account of the negotiations, based on interviews with these people, pulls back a curtain on the private wrangling to illuminate how the bank and the government managed to negotiate what would be a record deal. It also sheds new light on the hands-on role that Mr. Dimon and Mr. Holder played in the talks. And it highlights how Mr. Dimon has so far maintained the support of the bank’s board when other Wall Street chiefs were derailed by the financial crisis.
Much of the deal came down to dollars and cents. Mr. Dimon, the people said, signaled during that Sept. 24 call that he was willing to increase JPMorgan’s offer to settle an array of state and federal investigations into the bank’s sale of troubled mortgage securities before the financial crisis. The government, these people said, had already balked at the bank’s two initial offers: $1 billion and $3 billion.
And so that same week, Mr. Dimon traveled to the Justice Department in Washington for a meeting with Mr. Holder that underscored how expensive the healing process had become. At the meeting, the people briefed on the talks said, JPMorgan executives raised the offer to $11 billion, $4 billion of which would serve as relief to struggling homeowners.
But Mr. Holder wanted more money to resolve the civil cases, the people said. And despite the bank’s requests, he refused to provide JPMorgan a so-called nonprosecution agreement that would halt an investigation from prosecutors in California, who were scrutinizing the bank’s mortgage securities. Instead, the people said, he informed Mr. Dimon that the Justice Department wanted JPMorgan to plead guilty to a criminal charge in that case, an unusual show of force against a Wall Street bank.
While they were unable to strike a deal that day, Mr. Dimon and Mr. Holder kept in close touch, talking five times in the last two weeks. Late Friday, on the last of those calls, they finally reached the tentative deal: $13 billion and no promise of dropping the criminal investigation.
The deal, which could still fall apart over issues like how much wrongdoing the bank would admit, would be a record accord for the Justice Department. A single corporation has never before paid this much to settle.
The deal might also embolden the Justice Department and set a precedent for the agency’s investigations of Wall Street. Using the JPMorgan case as a template, and relying on a law that extends the legal deadline for filing certain financial fraud cases to 10 years from five, the Justice Department is planning to take action against other big banks suspected of selling troubled mortgage securities.
For JPMorgan, once known as Washington’s favorite bank, the deal would be a stunning reversal of fortune.
Complicating matters for the bank, Mr. Dimon is inextricably linked to the settlement. With the government, he assumed the role of chief negotiator. And at the bank, as illustrated at the museum gathering last month, he remains its chief cheerleader.