J.P. Morgan Pays WaMu Bill

English: WaMu Center

English: WaMu Center (Photo credit: Wikipedia)

In the negotiations leading up to J.P. Morgan Chase & Co.’s $13 billion settlement with the federal government, a sticking point was what to do about the fallout over Washington Mutual. In September of 2008, J.P. Morgan agreed to pay the government $1.9 billion to acquire the failed, Seattle-based thrift institution. As the acquirer, J.P. Morgan assumed WaMu’s distressed loan portfolio. At the time of the purchase, J.P. Morgan was praised for coming to the rescue in a time of national crisis.

Praise Turns to Blame Since that time, however, J.P. Morgan and the government have sparred over who should pay for claims arising from troubled mortgages at WaMu. Before its collapse, the thrift had expanded into making risky, subprime mortgages across the country. WaMu also held many mortgages in locations where housing prices fell hardest, including California and Florida.

J.P. Morgan felt like it was being unfairly punished by the government for WaMu’s misdeeds. The bank argued that it should not be held responsible for WaMu’s actions prior to the 2008 acquisition. In addition, J.P. Morgan sought to recover costs associated with the WaMu purchase.

But the government refused to accommodate the bank’s cost-reimbursement demands. The Financial Times reported that the Justice Department was concerned about public perceptions if J.P. Morgan was granted any reimbursements in connection with paying a record-breaking settlement penalty.

Let’s Make a Deal

In the weeks prior to the settlement, J.P. Morgan started to back off its position. Specifically, the bank agreed to drop cost-reimbursement demands concerning WaMu’s estate with the Federal Deposit Insurance Corporation. This helped to pave the way for a broader deal.

J.P. Morgan did not relinquish all of its rights to make WaMu-related claims. As part of the $13 billion deal, the bank preserved its ability to pursue reimbursement claims with the Federal Housing Finance Agency. In addition, J.P. Morgan retained its rights in a separate, tentative settlement with private institutional investors.

Moving Forward

The settlement puts to rest numerous investigations into mortgage securities sold by J.P. Morgan, which is the largest U.S. bank by assets. Now the bank can move beyond its legal disputes. Since the heights of the financial crisis in September of 2008, J.P. Morgan’s stock price is up about 60 percent.


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