JPMorgan is suing the Federal Deposit Insurance Corp. to recover more than $1 billion tied to its purchase of Washington Mutual when that bank failed in 2008.
In a federal court complaint, the biggest U.S. bank said that the FDIC failed to honour obligations under the Washington Mutual agreement, and that has subjected JP Morgan to massive liability.
The FDIC became the receiver for Seattle-based Washington Mutual when it collapsed during the height of the financial crisis in September 2008. It was the largest bank failure in U.S. history. The FDIC brokered the sale of Washington Mutual’s assets to JP Morgan for $1.9 billion. JPMorgan said the FDIC made promises to indemnify or protect the bank against liabilities if it stepped in.
New York-based JP Morgan Chase & Co. said in a court filing Tuesday that the FDIC later declined to acknowledge that government and investors’ claims against JP Morgan for sales of Washington Mutual’s risky mortgage-backed securities should have been claims against the receivership, not the bank.
Most of JPMorgan’s mortgage-backed securities came from Washington Mutual and the investment bank Bear Stearns, which it also acquired in 2008.
The FDIC did not immediately return calls seeking comment from The Associated Press early Wednesday. The FDIC has said that JPMorgan should be responsible for any liabilities regarding the Washington Mutual acquisition.
The Washington Mutual receivership’s assets are about $2.75 billion, according to JPMorgan.
JP Morgan has entered into a series of legal settlements over its sales of mortgage-backed securities in the years preceding the financial crisis. As the housing market collapsed between 2006 and 2008, millions of homeowners defaulted on high-risk mortgages. That led to billions of dollars in losses for investors who bought securities created from bundles of mortgages.
Last month, the bank agreed to pay $13 billion in a civil settlement with the Justice Department and state regulators over its sales of the mortgage-linked bonds. It was the largest settlement ever between the Justice Department and a corporation.
In addition, JPMorgan reached a $4.5 billion settlement in November that covered 21 major institutional investors.
The bank said in October that it set aside $9.2 billion in the July-September quarter to cover legal costs.
Shares of JPMorgan rose 7 cents to $55.79 in trading Wednesday morning. The shares have climbed nearly 27 per cent so far in 2013.