JPMorgan Reaches $4.5bn Mortgage Securities Settlement with 21 Investors

JPMorgan Chase, the largest US bank by assets, has agreed to a multi-billion dollar payout that settles claims by institutional investors who lost money on residential mortgage-backed securities before the US housing market crashed.

The bank will pay $4.5bn (£2.8bn, €3.3bn) to 21 institutional investors in 330 residential mortgage-backed securities (RMBS) trusts issued by JPMorgan and Bear Stearns, which it acquired during the financial crisis.

However, the deal does not resolve claims on trusts issued by Washington Mutual, the bank said in a statement.

The trustees have until 15 January 2014 to accept the offer, which may be extended for an additional 60 days, according to a statement by Gibbs & Bruns, the Houston law firm that represented the institutional investors.

The investors party to the agreement include Allianz SE's Pacific Investment Management Company, Metlife and the Pacific Investment Management Company.

"This settlement is another important step in JPMorgan's efforts to resolve legacy related RMBS matters. The firm believes it is appropriately reserved for this and any remaining RMBS litigation matters," according to the bank's statement.

"As agreed in today's settlement, the institutional investors have committed to support the settlement and have requested that the trustees accept the settlement offer," the statement added.

The $4.5bn payout is not linked to the tentative $13bn deal the bank struck with the US Department of Justice, to put an end to a raft of government mortgage product related probes.

JPMorgan is the third bank to strike a deal with investors over low-grade mortgage-backed securities issued prior to the financial crisis.

Automotive financial services firm Ally Financial was ordered to pay $7.3bn to bondholders in trusts issued by Ally's bankrupt mortgage lending arm, Residential Capital.

In 2011, Bank of America agreed to pay $8.5bn to 22 institutional investors. That deal awaits court approval.