For J.P. Morgan, Sorry Could Be the Hardest Word

If J.P. Morgan admits wrongdoing to the Justice Department, it will be a carefully crafted statement.

Signage for JPMorgan Chase & Co. is displayed atop Charter House in the central business district of Hong Kong, China, on Thursday, Aug. 29, 2013.(Jerome Favre/Bloomberg via Getty Images)
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There are lots of ways to admit you're wrong – a card, a phone call, sending flowers – but the decision is particularly daunting for a big bank. J.P. Morgan has learned that lesson the hard way in the last few months, and the question could come up again in the bank's reported $13 billion tentative settlement with the Justice Department.

 In recent settlements with the Securities and Exchange Commission and Commodity Futures Trading Commission, two regulatory agencies, the bank admitted to varying amounts of culpability in the so-called "London Whale" incident in which a trader's large market positions spurred more than $6 billion in losses for the bank. In the bank's current dealings with the Justice Department over its sales of mortgage backed securities, admissions of wrongdoing once again became a sticking point, according to the Wall Street Journal. While the bank wanted the government to call off criminal prosecutions, the government wanted an admission of guilt. Neither of those demands were resolved.

 Why be so loath to say sorry? It's not just about pride; admissions of guilt can have major financial consequences down the road, says one expert.

 [READ: JP Morgan Reportedly in $13 Billion Settlement With Feds Over Mortgages]

"It all depends on how you craft it. You can say things that will have consequences and you can say things that will be innocuous," says John Coffee, Adolf C. Berle Professor of Law at the Columbia Law School.

The current negotiations with the Justice Department hinge upon whether or not J.P. Morgan misrepresented the quality of the mortgages it bundled to be sold to investors as securities in the run-up to the recent financial crisis.

Even if the company settles the government claims, it still leaves the bank open to private claims in the future, Coffee says, and the bank wouldn't want to say anything in an apology that essentially hands ammunition to those who feel they have been wronged by the bank. J.P. Morgan declined to comment for this story.

"The idea from J.P. Morgan's perspective, the goal is to make an admission that satisfies the government's need to humble J.P. Morgan but that does not give the plaintiffs another case on a silver platter," he says.

One instructive case is in how J.P. Morgan dealt with the SEC and CFTC in its admissions of wrongdoing about the London Whale losses. The company took two different tacks in these admissions, as the New York Times pointed out, based on what charges the two regulators were pursuing.

"They could be simply admissions about specific facts that tied to the underlying cases, which was very much the way the admissions were done by the bank when it settled with the CFTC over the London Whale episode," says Thomas Gorman, a partner at Washington, D.C., law firm Dorsey Whitney and a former senior counsel at the SEC. "Or it could be broader, as when they settled with the SEC over the London Whale matter."

[ALSO: JP Morgan Faces Charges in Mortgage Backed Security Sales]

In that case, the bank admitted that it violated securities law in handling the London Whale case, but did not do so in such a way that it gave private plaintiffs an easier route in suing the firm. In addition, as Reuters columnist Alison Frankel pointed out, the bank's mea culpa suggested that CEO Jamie Dimon and CFO Douglas Braunstein were "insufficiently informed – rather than deceptive" when they initially characterized the losses to shareholders as relatively small and manageable.

Likewise, when the bank admitted wrongdoing to the CFTC one month later, it agreed that it had not properly supervised its traders, but a spokesman told Bloomberg News that the bank wouldn't admit to or deny a legal violation. As the New York Times reported, admitting to violating commodities laws could have created much heavier liabilities for the company.

Extracting these admissions has become a trend of sorts at government agencies lately, particularly at the SEC, where new Chairman Mary Jo White has made obtaining admissions of guilt her mission.