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JPMorgan Chase & Co. has resolved the last obstacles to a record $13 billion settlement of civil state and U.S. probes over the sale of mortgage bonds, clearing the way for a deal yesterday after months of negotiations, Bloomberg News reported yesterday. The accord includes a previously disclosed $4 billion settlement to end a 2011 Federal Housing Finance Agency lawsuit. While the deal would mark the largest amount paid by a financial firm in a settlement with the U.S., the Justice Department is still probing JPMorgan’s recruiting practices in Asia, energy trading and its relationship with Ponzi scheme operator Bernard Madoff. The New York-based bank has tapped $8 billion of $28 billion in reserves set aside since 2010 to cover legal costs.

A bankruptcy judge on Friday said that a group of Residential Capital LLC's bondholders aren't entitled to interest accrued since the mortgage servicer's bankruptcy filing, at least as of now, Dow Jones Newswires reported on Friday. Bankruptcy Judge Martin Glenn said that ResCap's junior secured noteholders are owed $1.9 billion and thus aren't "oversecured," after the first phase of a trial held last month. If the bondholders are deemed oversecured — which could still happen — they'd be entitled to interest accrued since ResCap's May 2012 bankruptcy filing, which they say is being racked up at $250 million per year. Another phase of the trial could still alter the numbers and render the creditors oversecured. But Judge Glenn said that the bondholders were wrong when they said they are owed $2.22 billion and are actually undersecured by $318 million. He did deal ResCap a blow by saying that the company can't collect $143 million in expenses related to the loans.

Lehman Brothers Holdings Inc.'s bank subsidiary is suing the Massachusetts Department of Transportation (MassDOT) over soured swaps and options, claiming the state authority manipulated the market-quotation process after Lehman's bankruptcy to reap a windfall of more than $30 million, Dow Jones Daily Bankruptcy Review reported today. Woodlands Commercial Corp., once known as Lehman Brothers Commercial Bank, is suing the agency to recover the tens of millions it says it is owed on half dozen interest rate swaps and option transactions.

BlackRock Inc. and Pacific Investment Management Co. are among investors set to make their final push for court approval of an $8.5 billion settlement with Bank of America Corp. over mortgage bonds that opponents say resolves only a small portion of their losses, Bloomberg News reported today. Lawyers for the investor group, which also includes Goldman Sachs Group Inc., are scheduled to begin closing arguments today in New York state court in Manhattan about why the settlement should be approved over opposition from American International Group Inc. AIG calls the deal a “pennies on the dollar” settlement while investor losses totaled more than $100 billion. Final arguments by supporters and opponents will wrap up a hearing over the agreement that began in June before New York State Supreme Court Justice Barbara Kapnick. The hearing began two years after Bank of America reached the settlement to resolve claims over mortgages packaged into securities. The accord settles claims that the loans backing the bonds didn't meet their promised quality.

The top U.S. derivatives regulator moved to close off large banks’ ability to avoid new regulation by arranging trades in America and then booking the deals in overseas affiliates, Bloomberg News reported yesterday. The guidance, released yesterday by the Commodity Futures Trading Commission, undermines a legal interpretation Wall Street had found buried in a footnote, number 513, in an agency policy document. Banks relied on the footnote to keep swap deals off electronic platforms and away from the agency’s rules that were put in place in the wake of the financial meltdown. Yesterday’s two-page guidance, while not mentioning the footnote, effectively closes the loophole, telling traders that if they are based in the U.S. and arrange, negotiate or execute a deal — even on behalf of an overseas affiliate — they must comply with the CFTC regulations.

Moody’s Investors Service cut its ratings on four of the biggest U.S. banks after deciding the government would be less likely to help them repay creditors in a crisis, Bloomberg News reported today. Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co. and Bank of New York Mellon Corp. had their senior holding company ratings lowered one level yesterday after Moody’s concluded a review of eight U.S. banks that began in August. U.S. banking regulators have been preparing rules and procedures that seek to allow the government to wind down even the largest financial companies without providing taxpayer assistance. The plans would require investors to accept losses and could require bonds to be converted into equity capital.

Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La.) said that big banks’ disproportionate reliance on U.S. aid after the credit crisis reinforces the need for additional steps to ensure the end of too big to fail, Bloomberg News reported yesterday. Brown and Vitter, co-sponsors of a plan to impose a 15 percent capital requirement on the biggest lenders, commented after the release yesterday of a Government Accountability Office study that showed such firms made greater use of bailout programs introduced after markets collapsed in 2008. The GAO findings represent the first of two reports responding to a request by Brown and Vitter to put a dollar figure on the benefit derived from U.S. aid by the largest bank holding companies. The number sought by the lawmakers, who say that the big banks have grown by $2 trillion since the crisis, will be included in a second report next year, the GAO said. Larger bank holding companies, which rely on short-term funding markets, made greater use of aid programs during the crisis than did smaller banks mainly funded by deposits, the GAO said. Aid use measured as the percentage of total assets supported by programs was higher for banks with more than $50 billion in assets, according to the report.

Moody’s Investors Service cut its ratings on four of the biggest U.S. banks after deciding the government would be less likely to help them repay creditors in a crisis, Bloomberg News reported today. Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co. and Bank of New York Mellon Corp. had their senior holding company ratings lowered one level yesterday after Moody’s concluded a review of eight U.S. banks that began in August. U.S. banking regulators have been preparing rules and procedures that seek to allow the government to wind down even the largest financial companies without providing taxpayer assistance. The plans would require investors to accept losses and could require bonds to be converted into equity capital.

Fairholme Capital Management LLC said yesterday that it would like to buy parts of bailed-out mortgage-finance giants Fannie Mae and Freddie Mac from the government in a recapitalization valued at $52 billion, the Wall Street Journal reported today. The proposal faces very long odds, given recent statements from top Obama administration and regulatory officials. But it could raise the profile of the needed mortgage-market overhaul that has only recently begun to attract attention from Congress. Bruce Berkowitz, Fairholme's chief investment officer, made the offer in a letter sent late Wednesday to the firms' federal regulator. Fairholme, a Miami-based mutual-fund company, sued the U.S. earlier this year over its bailout of Fannie and Freddie. The firm said it would lead a group of investors that has already acquired "preferred" shares of Fannie and Freddie in purchasing, recapitalizing and operating the mortgage-guarantee businesses of the companies as state-regulated bond insurers.

Global regulators this week put JPMorgan Chase & Co. and HSBC Holdings Plc at the pinnacle of a list of 29 too-big-to-fail banks that face tougher capital rules than other lenders, and the companies were also handed a map to plot their descent, Bloomberg News reported today. For the first time since it started compiling a roster of lenders whose collapse would threaten the global economy, the Basel Committee on Banking Supervision also disclosed the thresholds for how it determined the level of extra capital requirements that such banks should face. The move will enable lenders to find ways to move down to a lower surcharge category or exit the list altogether. The capital surcharges for globally systemic lenders add an extra layer of safety beyond beefed-up standards known as Basel III that emerged in the wake of the 2008 collapse of Lehman Brothers Holdings Inc. Regulators said the additional buffers were vital to protect taxpayers and prevent crises from cascading through the financial system.