JPMorgan Chase & Co. says its has the right to hang on to billions of dollars worth of securities, potential tax refunds, cash and other assets that have been claimed by the former parent of Washington Mutual Bank, the seized thrift JPMorgan bought for $1.9 billion.
JPMorgan staked its claim Tuesday in a Delaware bankruptcy court lawsuit aimed at Wamu's former parent, Washington Mutual Inc., and at the Federal Deposit Insurance Corp. JPMorgan's suit follows by days the filing of a lawsuit by Wamu's former parent against the FDIC, seeking billions in damages.
Regulators seized Wamu in September 2008, after customers withdrew $16.7 billion in ten days, fearful the thrift would collapse due to soured home loans. The FDIC sold Wamu to JPMorgan, stripping the parent company of its prized asset and plunging it into bankruptcy.
Now the FDIC is the receiver for Wamu's creditors, who are owed more than $20 billion. Wamu's former parent is in Chapter 11 bankruptcy, owing its own creditors more than $8 billion.
And JPMorgan, the FDIC and Wamu's former parent are battling over exactly what JPMorgan bought when it bought Wamu. In court papers, JPMorgan said that its $1.9 billion deal entitled it to "all of the Receiver's (FDIC's) right title and interest" in the seized thrift, but few of the liabilities.
Cash in bank accounts, in pension plans and money expected in tax refunds are up for grabs in the high-stakes litigation. With billions on the line, the two lawsuits filed in recent days, one by Wamu's former parent, the other Tuesday by JPMorgan, are likely not the end of the legal action.
JPMorgan was not named as a defendant in the suit Wamu's former parent filed Friday in the U.S. District Court for the District of Columbia. However, bankruptcy lawyers have said the investment bank that bought Wamu could not help but be drawn into the fray.
Tuesday, JPMorgan spokeswoman Jennifer Zuccarelli declined comment on the lawsuit that was filed Friday.
JPMorgan has possession of some of the most significant assets claimed by Wamu's former parent, including $4 billion worth of trust securities and $4 billion in cash on deposit in the bank. Also at stake in the lawsuits is an expected $3 billion worth of tax refunds, money coming back from the government due to the losses from Wamu's seizure.
The dispute has been brewing for months, setting off speculation among creditors and investors about who will ultimately come out on top. A win by the FDIC or Wamu's former parent would go a long way toward paying off leftover bills from the biggest bank collapse in U.S. history. A win by JPMorgan would mean a windfall for the acquirer, which paid only $1.9 billion for the thrift in a deal that allowed it to walk away from many of Wamu's liabilities.
The suit JPMorgan filed Tuesday seeks a court ruling that its purchase of Wamu included $4 billion worth of trust securities, billions in potential tax refunds, pension plans, life insurance rights and other assets that are on the list of property claimed by Wamu's former parent.
Most of those assets are familiar to creditors of Wamu's former parent, who have been poring over bankruptcy court documents in an effort to calculate their chances of getting paid.
JPMorgan also says it's entitled to collect $3.7 billion from the former parent due to a "book entry" in the days before the September takeover of Wamu. According to JPMorgan, Wamu's former parent on Sept. 24 booked the transfer of $3.7 billion from it to Wamu, the bank, but never deposited any funds.
Wamu's former parent has explained that the book entry marked a transfer of existing funds from one of its accounts at Wamu to another of its accounts, and that any other reading is simply a mistake.