JP Morgan faces £8bn fine over mortgage-backed securities claims

If the agreement is finalised it would be the US government’s highest-profile enforcement action related to the financial meltdown that plunged the economy into the deepest recession since the Great Depression of the 1930s.

A person familiar with the negotiations between the bank and the federal government revealed the deal on Saturday night, speaking on condition of anonymity because it has not been finalised.

The source said Attorney General Eric Holder, Associate Attorney General Tony West, JP Morgan chief executive Jamie Dimon and the bank’s general counsel, Stephen Cutler, negotiated the tentative settlement in a Friday night phone call.

The person said the tentative agreement does not resolve a criminal investigation of the bank’s conduct. It is being handled by federal prosecutors in Sacramento, California. On Friday night, Mr Holder told the bank that a non-prosecution agreement was a non-starter – meaning that the Justice Department will continue to conduct the criminal investigation of the financial institution, said the person.

As part of the deal, the Justice Department expects JP Morgan to co-operate with the continuing criminal probe of the bank’s issuance of mortgage-backed securities between 2005 and 2007, the person said.

JP Morgan spokesman Brian Marchiony and Justice Department spokesman Brian Fallon declined to comment.

Of the $13bn, $9bn (£5.6bn) is fines or penalties and the rest will go to consumer relief for struggling homeowners, the person said.

When the housing bubble burst in 2007, bundles of mortgages sold as securities soured and the investors who bought them lost billions. In the aftermath, public outrage boiled over that no high-level Wall Street executives had been sent to jail. Some politicians and other critics demanded that the bailed-out banks and senior executives be held accountable.