A mortgage-backed security is a product that pools together mortgages into a bond, also amalgamating the interest payments, and the package is then sold to investors. This practice was common pre-2007. It is alleged that JPMorgan Chase omitted facts and made false statements when selling $33 billion worth of mortgage-backed securities to Fannie Mae and Freddie Mac in 2008. Both institutions were rescued later that year, at the height of the credit crisis.
If the proposed fine is issued it will be the biggest settlement in US corporate history. The bank has put aside $23 billion for increasing legal costs – in a way the $13 billion fine is already priced in, but we could still see the share price decline if the fine is confirmed.
Recently the bank reported a quarterly loss of $380 million that compared with a profit of $5.7 billion for the same period the previous year. This was down to legal costs of $9.2 billion.