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Chase’s Legal Woes Wipe Out 2012 Profit

The biggest bad boy on the banking block, JPMorgan Chase, has agreed to pay $13 billion over allegations that it misled investors about the risky mortgages they were buying.

That’s the biggest legal settlement ever between the United States government and a single company or individual.

It’s also $2 billion more than the $11 billion settlement we expected.

And when you add that $13 billion onto all of the other settlements JPMorgan Chase has agreed to this year, those screw-ups pretty much wipe out the $21.2 billion in profits it logged last year.

Chase’s deal with the Justice Department resolves a wide range of allegations about how the bank fraudulently created, marketed and sold bonds backed by home loans that were almost certain to fail — and did.

The bank acknowledged that it made serious misrepresentations to the public about the quality of its mortgage-backed securities, according to a news release from the Department of Justice.

That helped lead to the housing crisis and naturally contributed to the Great Recession.

“Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown,” said Attorney General Eric Holder in a news release. “JPMorgan was not the only financial institution during this period to knowingly bundle toxic loans and sell them to unsuspecting investors, but that is no excuse for the firm’s behavior.”

Chase certainly isn’t getting off easy.

Of the $13 billion, $9 billion will go to federal and state civil claims.

The other $4 billion will be in the form of relief for consumers who were harmed by the actions of JPMorgan Chase, Bear Stearns and Washington Mutual.

The news release says consumers will see relief in the form of principal loan forgiveness, loan modification, targeted originations and efforts to reduce blight. (Although news organizations that have been crunching the numbers say that only about 10,000 borrowers will actually benefit.)

Of course, this only resolves civil claims regarding residential mortgage-backed securities.

Chase, and individuals who may have participated, aren’t shielded from potential criminal prosecution. And individuals involved aren’t released from civil charges.

This deal follows billions of dollars in other settlements reached by Chase in recent months.

Just last week, the bank reached a $4.5 billion settlement with 21 major institutional investors over the mortgage-backed securities the bank sold to them before the financial crisis.

Chase, of course, has been roiled with investigations, and the breadth of the bank’s alleged wrongdoing is staggering. Abusing borrowers. Lying to shareholders. Even manipulating electricity prices.

Including the recent $13 billion and $4.5 billion settlements, the bank has now paid a total of $21.28 billion in settlements this year — right about what it earned in profits last year.

We can only hope that Chase holds up its end of the deal and doesn’t start raising fees on its checking accounts and credit card customers to make up for those expenses.

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