By
Devlin Barrett and
Dan Fitzpatrick
connect
Updated Nov. 4, 2013 9:58 p.m. ET
Talks between J.P. Morgan Chase JPM -0.90% & Co. and the Justice Department are heating back up after several disagreements threatened to scuttle a landmark pact between the two last month, people close to the talks said.
Comprehensive final terms haven't been reached, but several people said it was possible they could be agreed to this week.
The $13 billion deal would resolve a number of probes into the bank's sale of mortgage bonds during the housing boom.
Negotiators from J.P. Morgan and the Justice Department are working on final language that would resolve the differences that divided the two sides last week, including the question of whether J.P. Morgan can count $5.1 billion in recent settlements with mortgage-finance companies Fannie Mae and Freddie Mac toward the $13 billion total.
For months, the talks have been fraught with brinkmanship, as Justice Department lawyers repeatedly threatened to walk away from the negotiating table and file a civil lawsuit against the bank, according to people close to the talks.
J.P. Morgan has tentatively agreed to a government request that only $4 billion of the $5.1 billion should go toward the larger pact, said people close to the talks. J.P. Morgan wouldn't be able to count a $1.1 billion payment that resolves demands the bank purchase poorly performing mortgages from Fannie and Freddie, these people said.
J.P. Morgan could put the $1.1 billion demand back on the table if it doesn't like the final agreement, one of these people said. A J.P. Morgan spokesman declined to comment.
The two sides are also making progress on whether J.P. Morgan or the Federal Deposit Insurance Corp. bears ultimate responsibility for liabilities linked to Seattle thrift Washington Mutual Inc., WMIH -4.59% these people said. J.P. Morgan acquired Washington Mutual's banking operations from an FDIC receivership during the financial crisis, and Justice Department officials have asked that no costs that the bank pays regarding the past actions of Washington Mutual be passed on to the FDIC, said people close to the talks.
It isn't known exactly how that issue will be resolved but people close to the talks no longer expect it to threaten a final agreement.
The deal would represent significant progress in J.P. Morgan's effort to put as many legal woes behind it as possible. J.P. Morgan, which has a total reserve pot of $23 billion to use toward any future settlements and lawsuits, also agreed in recent months to pay more than $1 billion to end an array of investigations into a 2012 trading debacle that cost the bank more than $6 billion and raised questions about governance and oversight.
Even if a settlement is finalized this week, it wouldn't mean an end to J.P. Morgan's legal problems. Any pact with the Justice Department isn't expected to resolve an ongoing criminal probe into the sale of mortgage securities that could ultimately result in charges against individuals at the bank.
During negotiations, the two sides disagreed over an admission of wrongdoing that would end the criminal probe and decided instead to resolve the civil allegations against the bank related to the mortgage securities. That releases J.P. Morgan from any future civil cases brought by the government relating to its own conduct, Bear Stearns Cos. or Washington Mutual.
J.P. Morgan purchased Bear Stearns and the banking operations of Washington Mutual during the 2008 financial crisis.
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