Followers | 154 |
Posts | 13656 |
Boards Moderated | 3 |
Alias Born | 11/24/2007 |
Wednesday, November 10, 2010 9:36:32 PM
By Jia Lynn Yang
Washington Post Staff Writer
Wednesday, November 10, 2010; 9:06 PM
Federal regulators and J.P. Morgan Chase - which together managed the collapse of Washington Mutual during the frenzied days of the financial crisis - are embroiled in a fight over who should cover billions of dollars from a legal mess that the failed Seattle thrift left behind.
The 2008 implosion of WaMu, as it's commonly known, was the biggest banking failure in U.S. history, prompting the Federal Deposit Insurance Corp. to take over the firm and then orchestrate a shotgun deal for J.P. Morgan to buy the bank for a paltry $1.9 billion.
But the paperwork for the merger was written so hastily over a 48-hour period that it left ambiguous who should cover the cost of WaMu's liabilities.
J.P. Morgan points the finger at the FDIC, saying that it agreed only to take on bank liabilities that were spelled out on WaMu's books during the handoff. The lawsuits weren't, hence, J.P. Morgan has said it is off the hook, according to legal filings.
The FDIC has said J.P. Morgan agreed to buy the bank, both the good and the bad.
The dispute is another reminder of the continuing fallout from the extraordinary - and very rushed - steps taken by the federal government to shore up the financial system as it was teetering on collapse. Decisions were made quickly, and the paperwork sealing massive mergers was signed without spelling out every consequence.
Ultimately, taxpayers could bear the brunt of those hasty actions. Experts say the law may indeed favor J.P. Morgan.
"J.P. Morgan has a very good shot of taking back a substantial portion of the $1.9 billion it paid for WaMu, even after having reaped what I think is a windfall," said Kevin Starke, an analyst with CRT Capital Group.
WaMu is being sued by large investors who say the banking giant sold securities full of mortgages but misrepresented how risky they were.
The representative of these investors, Deutsche Bank National Trust, has not singled out which of WaMu's past owners should pay up. It instead filed suit against both the FDIC and J.P. Morgan claiming $6 billion to $10 billion in damages for violating contracts.
J.P. Morgan officials declined to comment on the matter. But in the bank's third-quarter financial filings this week, it said "such repurchase obligations remain with the FDIC receivership."
The FDIC has filed a motion for a judge to dismiss Deutsche Bank's suit, stating it was not liable to Deutsche Bank and that J.P. Morgan "expressly assumed" liabilities of the company. A spokesman for the FDIC declined to comment.
The dispute between the FDIC and J.P. Morgan hinges on the interpretation of one section in the WaMu sale agreement to J.P. Morgan on Sept. 25, 2008.
According to the document, J.P. Morgan agreed to "pay, perform, and discharge all of the liabilities of the Failed Bank which are reflected on the Books and Records of the Failed Bank as of Bank Closing."
The liabilities from mortgage security lawsuits weren't listed on those "Books and Records," according to J.P. Morgan. Eventually, a federal judge in the District will decide whether the bank's claim has merits.
In its filings, J.P. Morgan estimates that from 2005 to 2008 - roughly the peak of WaMu's subprime lending frenzy - WaMu sold $150 billion of loans to Fannie Mae and Freddie Mac. The bank added that the FDIC is responsible for covering the cost of any loans that Fannie and Freddie want to return, as well.
If the interpretation of the agreement is unclear, it's because the FDIC at the time was in such a hurry to make the sale. No other bidders had emerged for what was then the country's biggest savings and loan. J.P. Morgan, meanwhile, had ambitions of expanding into California and Florida, making WaMu's presence on the West Coast especially attractive. Plus, the $1.9 billion price tag was a bargain.
The deal allowed the FDIC to avoid losing any money from its handling of WaMu's failure. J.P. Morgan instead absorbed $31 billion in losses and inherited a portfolio laden with bad loans.
But J.P. Morgan has since benefited greatly from the deal. Starke estimates that the bank can claim about $2 billion in tax refunds from the WaMu acquisition. He added that the bank has also gotten a $5 billion windfall from inheriting WaMu's life insurance policies.
It's not a foregone conclusion that the investor lawsuits against J.P. Morgan and the FDIC will succeed. Investors have so far struggled to prove that banks had poor underwriting standards. In order to make their case, they need critical loan information that's being held - and not released - by the banks.
http://www.washingtonpost.com/wp-dyn/content/article/2010/11/10/AR2010111007309.html
Recent COOP News
- Form 10-Q - Quarterly report [Sections 13 or 15(d)] • Edgar (US Regulatory) • 07/26/2024 08:20:36 PM
- Form 8-K - Current report • Edgar (US Regulatory) • 07/25/2024 11:00:12 AM
- FLAGSTAR BANK, N.A. ANNOUNCES SALE OF ITS MORTGAGE SERVICING BUSINESS • PR Newswire (US) • 07/25/2024 11:00:00 AM
- Mr. Cooper Group Reports Second Quarter 2024 Results and Announces Acquisition of Mortgage Operations From Flagstar • Business Wire • 07/25/2024 11:00:00 AM
- Mr. Cooper Group Inc. to Discuss Second Quarter 2024 Financial Results on July 25, 2024 • Business Wire • 07/11/2024 08:00:00 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/30/2024 08:07:34 PM
- Form 8-K - Current report • Edgar (US Regulatory) • 05/24/2024 08:36:48 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/24/2024 08:33:25 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/24/2024 08:28:46 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/24/2024 08:26:19 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/24/2024 08:24:11 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/24/2024 08:22:07 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/24/2024 08:19:44 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/24/2024 08:17:44 PM
- Xome Democratizes Real Estate with Launch of DIY Sales Platform, No Agent Required • Business Wire • 05/22/2024 01:00:00 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/15/2024 10:47:32 PM
- Form DEFA14A - Additional definitive proxy soliciting materials and Rule 14(a)(12) material • Edgar (US Regulatory) • 05/15/2024 12:11:30 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/10/2024 12:12:48 AM
- Form 144 - Report of proposed sale of securities • Edgar (US Regulatory) • 05/07/2024 08:22:09 PM
- Mr. Cooper Group Reports First Quarter 2024 Results • Business Wire • 04/24/2024 11:00:00 AM
- Mr. Cooper Group Announces Two New Senior Leaders • Business Wire • 04/23/2024 01:00:00 PM
- Mr. Cooper Group Inc. to Discuss First Quarter 2024 Financial Results on April 24, 2024 • Business Wire • 04/05/2024 03:37:00 AM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 03/11/2024 09:34:36 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 03/04/2024 11:05:39 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 03/04/2024 11:04:15 PM
Glidelogic Corp. Announces Revolutionary AI-Generated Content Copyright Protection Solution • GDLG • Jul 26, 2024 12:30 PM
Southern Silver Files NI43-101 Technical Report for its Updated Preliminary Economic Assessment for the Cerro Las Minitas Project • SSV • Jul 25, 2024 8:00 AM
Greenlite Ventures Completes Agreement with No Limit Technology • GRNL • Jul 19, 2024 10:00 AM
VAYK Expects Revenue from First Airbnb Property Starting from August • VAYK • Jul 18, 2024 9:00 AM
North Bay Resources Acquires Mt. Vernon Gold Mine, Sierra County, California, with Assays up to 4.8 oz. Au per Ton • NBRI • Jul 18, 2024 9:00 AM
Nightfood Holdings Signs Letter of Intent for All-Stock Acquisition of CarryOutSupplies.com • NGTF • Jul 17, 2024 1:00 PM