It's been five years since the housing crisis that plunged the U.S. into a recession, and the dust has yet to settle. Take Friday morning's jobs report: the unemployment rate is at 6.7 percent because more people have dropped out of the workforce. Low property values and home foreclosures still plague many areas of the country. So Wall Street CEOs are prepared to finally pay up. The New York Times reports that banks are quietly preparing to pay $50 billion in total to "buy peace" from the federal government for selling mortgage-backed securities pre-2008. $15 billion would go directly to consumers affected by bad loans.
JPMorgan CEO Jamie Dimon, of course, already made a deal with the DOJ last year. The bank will pay out a record $13 billion to settle various lawsuits and contribute to consumer recovery for their role in the housing crisis. Now, 16 other banks are being investigated by the DOJ in the same way. As Attorney General Eric Holder said in November, "JPMorgan was not the only financial institution during this period to knowingly bundle toxic loans and sell them to unsuspecting investors ... The size and scope of this resolution should send a clear signal that the Justice Department’s financial fraud investigations are far from over. No firm, no matter how profitable, is above the law, and the passage of time is no shield from accountability."
Banks are meeting with outside lawyers to determine what they'll end up paying, using JPMorgan's settlement as a benchmark. Jessica Silver-Greenberg and Peter Eavis at the Times report that "such calculations, people briefed on the matter said, have gained particular urgency among the banks’ board members."
The Times' graph at the right illustrates which banks are likely the most liable. Bank of America will probably owe the most, according to lawyers' analysis. The bank could settle for $11.7 billion in penalties and an additional $5 billion for consumer relief.
While reaching settlements with the DOJ will be a major headache for CEOs, most of them just want to settle and move on. RBC Capital bank analyst Gerard Cassidy told the Times, "Yes, $50 billion is a big number. But it is manageable for the 16 banks, and the industry wants to put this behind them."
Dimon, meanwhile, is out of the woods. Analysts expect that JPMorgan will have to pay $2 billion of $3 billion over the next few years to settle ongoing suits, which is relatively no big deal. If Bank of America and others are looking to JPMorgan as a model, they know the worst will be over soon. Just look how happy Dimon was at Christmas.