J.P. Morgan Chase & Co. won a key legal battle in its effort
to avoid billions of dollars in potential liabilities from its
purchase of Washington Mutual Inc.'s banking operations.
A judge in a Washington, D.C., court said the Federal Deposit
Insurance Corp. must shoulder certain legal claims stemming from
decisions Washington Mutual made before J.P. Morgan bought the
company in 2008 at the behest of regulators.
J.P. Morgan and the FDIC have disagreed for years over who is
ultimately liable for those claims. J.P. Morgan has said the FDIC
receivership that liquidated the failed thrift in 2008 should pay
any claims. The FDIC has countered that J.P. Morgan is
responsible.
The Wednesday ruling by U.S. District Judge Rosemary M. Collyer
doesn't affect the $13 billion penalty J.P. Morgan paid as part of
a settlement with the Justice Department on mortgage-related
matters in November 2013. But it does make it more likely that it
won't ultimately pay on some other WaMu-related claims.
For example, any potential damages from a private lawsuit
brought by Deutsche Bank National Trust Co. seeking roughly $10
billion on behalf of more than 100 trusts holding poorly performing
bonds issued by WaMu would fall into the FDIC receivership,
according to a person familiar with the case.
An FDIC spokesman declined to comment. It is unclear whether the
agency will appeal.
Judge Collyer said in her opinion that J.P. Morgan is
responsible only for liabilities reflected in so-called book value
on WaMu's financial accounting records as of Sept. 25, 2008. The
FDIC had previously argued that book value could include more than
what was on the accounting records.
But J.P. Morgan has other liabilities, including those related
to a unit called Washington Mutual Mortgage Securities Corp., the
judge ruled.
The receivership run by the FDIC isn't made up of taxpayer
dollars but is rather a certain amount of money that would then be
divvied up among creditors, including J.P. Morgan and a number of
hedge funds that bought debt as years passed.
Write to Emily Glazer at emily.glazer@wsj.com
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