NEW YORK (

TheStreet

) -- Shares of

JPMorgan Chase

(JPM) - Get Report

fell 2.2% to $50.33 Tuesday as it continues to be weighed down by its legal woes.

The

New York Times

reported late Monday that the bank may face a lawsuit from the Justice Department in California, which believes the bank violated federal securities laws in the sale of mortgage-backed securities to investors in the years leading up to the financial crisis.

JPMorgan had already disclosed in a filing in August that it was responding to parallel investigations conducted by the civil and criminal divisions of the US Attorney's office for Eastern California.

But the report also said that JPMorgan and the U.S. Department of Housing and Urban Development(HUD) had discussed a broader settlement and that the agency was looking to extract a sum as high as $20 billion.

HUD has categorically denied that it had demanded a $20 billion sum, according to a

Reuters

report Tuesday.

But the bank is now reportedly in last-minute talks with the U.S. government to settle the civil case that was to be filed in court Tuesday.

Just last Thursday, JPMorgan entered into a $920 million settlement agreement with multiple regulators to settle charges related to the London Whale trading losses. In its settlement with the SEC, the bank had to admit wrongdoing.

It also paid $369 million in fines and customer refunds springing from "illegal credit card practices."

Analysts have remained bullish on the stock, arguing that the stock is cheap and that legal losses would eventually decline.

But the bank is likely to face headline risk for some time.

Wells Fargo

(WFC) - Get Report

also suffered a legal setback Tuesday after a federal judge rejected its bid to dismiss a U.S. government lawsuit accusing it of misleading HUD and the Federal Housing Administration about the quality of its loans. Shares fell 1.4%.

Shares of

Citigroup

(C) - Get Report

fell 1.2% to $48.96 after it announced that it will cut 1,000 jobs in its mortgage division. This follows recent announcements by Bank of America and Wells Fargo that they were cutting mortgage jobs as the refinancing boom has come to an end.

Regions Financial

(RF) - Get Report

and

Keycorp

(KEY) - Get Report

were among the handful of large-cap banks that finished the day higher.

-- Written by Shanthi Bharatwaj New York.

>Contact by

Email

.

Follow @shavenk

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.