According to Reuters, JPMorgan Chase & Co’s preliminary $13 billion mortgage settlement with the U.S. government could end up costing the bank closer to $9 billion after taxes, because the majority of the deal is expected to be tax deductible, two sources familiar with the matter said.
The deduction also means the government is getting less than it appears in this deal. Banks can often deduct legal settlements from their taxes, but cannot get tax benefits from penalties for violating laws.
JPMorgan and the U.S. government have been negotiating the tax treatment of the settlement. The outcome could have a dramatic impact on exactly what the deal ends up costing the bank, how it is perceived by the public and whether it becomes a model for resolving government investigations of mortgage deals at other banks.
JPMorgan is negotiating the settlement with a group of government agencies led by the Justice Department, and the deal is expected to include a $2 billion penalty, one source said.
But another $4 billion of the deal, which will go toward aid for struggling mortgage borrowers, is tax deductible, another person familiar with the negotiations said.