London Whale: JPMorgan Facing $6bn in Fines over Mis-Selling Mortgage-Backed Securities

US banking major JPMorgan Chase is facing another regulatory blow with an expected multi-billion dollar fine related to lawsuits over its selling of bonds backed by subprime mortgages.

Housing finance authorities in the US are demanding fines up to $6bn (£3.9bn, €4.5bn) to settle lawsuits over mis-selling securities to state-backed mortgage companies, Fannie Mae and Freddie Mac, according to media reports.

The US Federal Housing Finance Agency (FHFA) has earlier sued JPMorgan along with several other banks and financial institutions for misrepresentation in selling mortgage-backed securities in the run-up to the financial crisis. The regulator alleged that JPMorgan "significantly overstated the ability of the borrowers to repay their mortgage loans" while selling $33bn of mortgage-backed securities to Fannie Mae and Freddie Mac.

The FHFA, which regulates Fannie Mae and Freddie Mac, noted that the mortgage companies suffered significant losses as the value of the securities declined sharply after borrowers started defaulting on their loans during the 2007 crisis period.

Both Reuters and the Financial Times, who cited people familiar with the situation, said that JPMorgan is resisting the big fine and looking to settle the deal for a lower amount.

Switzerland-based UBS earlier settled allegations against it paying a fine of $885m in July. Citigroup and General Electric also settled their cases with the FHFA.

'London Whale' Boss Battles Extradition

On top of the $6bn mis-selling headache, JPMorgan's costly "London Whale" saga continues to loom overhead.

Spanish police arrested Javier Martin-Artajo, the former JPMorgan Chase banker accused of hiding hundreds of millions of dollars in losses stemming from the London Whale scandal.

The bank lost over $6.2bn from the London Whale scandal during 2012.

Martin-Artajo, the former boss of JPMorgan trader Bruno "London Whale" Iksil who lost the bank over $6.2bn because of a series of bad market bets, is fighting attempts by US authorities to extradite him from Spain.

Martin-Artajo was charged along with former JPMorgan colleague Julien Grout with several counts of fraud by US prosecters, who accuse the two men of trying to cover up some of the London Whale's losses.

He headed up the JPMorgan team that made a series of catastrophic trades, while Grout was tasked with recording and distributing daily values on the team's positions.

Both were charged with four counts, including wire fraud, falsifying books and records, making false filings with a US regulator, and conspiracy. Iksil faces no charges, despite being the person who made the monumental loss.

Martin-Artajo was arrested by Spanish police over the US charges after giving himself up.

"The arrested person is presumed responsible for manipulating and inflating the value of positions in the synthetic credit portfolio of his firm with the specific objectives of daily losses and gains," said a statement from Spain's police service.

JPMorgan's Rising Legal Costs

Earlier in August, the US Securities and Exchange Commission launched an investigation into the hiring practices of JPMorgan for its China operations. It has allegedly hired the children of powerful heads of state-owned companies in China in a bid to win more business.

The New York Times separately reported that the US Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau are preparing to impose a fine of $80m on JPMorgan over its improper dealings with retail customers during the recession.

In July, JPM agreed to pay the Federal Energy Regulatory Commission $410m in penalties and disgorgement for its role in manipulating the electricity markets in California and the Midwest from September 2010 through to November 2012.

The bank has spent about $10bn on various lawsuits over the past two years. For the current fiscal year, JPMorgan raised its reserves to cover legal costs to $6.8bn at the end of June from $6bn three months before.