Can you beat the federal government?
The FDIC owes JPM at least $1 billion associated with its purchase of Washington Mutual, according to a lawsuit filed by the bank today.
JPM bought Washington Mutual for $1.9 billion after it was seized by the regulators in 2008. The deal was constructed by the FDIC. JPM claims the FDIC agreed to indemnify it for related liabilities related to WaMu.
It's a curious proposal given that JPM just agreed to pay a record $13 billion to settle claims with the Department of Justice over unhealthy mortgage securities sold before the financial crisis. JPM says 80% of that settlement can be attributed to the two firms it bought amid the crisis: Washington Mutual and Bear Stearns.
So why should the FDIC pay JPM $1 billion to cover WaMu claims? Well, for one, JPM says it helped the government and the FDIC out when it agreed to take on troubled WaMu. Also, JPM says at the time FDIC essentially agreed to step in and pick up the tab for legal claims stemming from Washington Mutual.
Not so, according to the FDIC, which says JPM should be responsible for any liabilities regarding Washington Mutual.
It's an interesting case given JPM's diminished reputation and influence over the last couple of years; not even during the crisis did JPM face the plethora of negative news facing it more recently.
The London Whale incident sparked a long list of legal troubles for JPM and its CEO, Jamie Dimon, beginning back in the spring of 2012.
There's also since been a federal bribery investigation looking into whether JPM hired the children of Chinese officials to help it win business. The investigation involving Bernard Madoff and JPM as the ponzi schemer's main banker is also heating up.
On November 15, JPM reached a $4.5 billion agreement with 21 institutional investors to settle representation-and-warranty claims as well as servicing claims on RMBS trusts sponsored by JPMorgan,
JPM’s total credit and mortgage settlements since 2010 adds up to $26.4 billion, the second largest amount behind
So, you can't blame JPM for trying to get some assistance (in its opinion, well-deserved assistance since the FDIC apparently agreed to help out) to help pay its mounting legal bills.
On the other hand, the last time JPM tried to use the argument that its purchases of WaMu and Bear were done as a favor to the government and therefore shouldn't be punished it ended up agreeing to shell out $13 billion.
