Receivership obstacle in talks between JP Morgan and Justice Dept

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Negotiations between the United States Justice Department and JPMorgan have hit a stumbling block that has put the talks at risk.

A week and a half ago, JPMorgan tentatively agreed to pay US$13 billion ($16 billion) to settle allegations surrounding the low quality of mortgage-backed securities it sold in the run-up to the 2008 financial crisis.

One of the unresolved issues in the talks is that JPMorgan says it should be able to seek money from a receivership involving Washington Mutual, a failed savings and loan association that JPMorgan bought in 2008, said an unnamed source.

The receivership is overseen by Federal Deposit Insurance (FDIC), the independent agency created by Congress to maintain stability in the banking system. The FDIC's position is that JPMorgan is responsible for any liabilities regarding the acquisition of Washington Mutual.

The unnamed source says the two sides also disagree over whether the bank can face criminal charges. The tentative US$13 billion deal only covers civil issues.

In a proposal on Monday, the bank said it wanted to limit any possible criminal exposure to a single ongoing criminal investigation in California.

Justice Department spokesman Brian Fallon said: "I have no comment on the rumours about the talks with JPMorgan." JPMorgan spokesman Mark Kornblau declined to comment.

On Saturday, a government agency that oversees mortgage finance companies Fannie Mae and Freddie Mac announced that JPMorgan had agreed to pay US$4 billion of the US$13 billion involved in the tentative settlement. The US$4 billion resolves claims that the bank misled Fannie and Freddie about risky mortgage securities it sold to them before the housing market collapsed.

Fannie and Freddie were rescued in a taxpayer bailout in 2008 as they sank under the weight of mortgage losses.

- AP