A Recent Ruling Gives the FDIC the Responsibility to Pay WaMu Claims

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Summary: An important decision has finally been made regarding whether the FDIC or J.P. Morgan Chase should pay the claims leftover from the once Washington Mutual bank.

J.P. Morgan Chase & Co bought Washington Mutual for $1.88 billion seven years ago during the financial crisis but is still dealing with issues and liabilities from the purchase of the banks operations. They are now one step closer to putting the issues aside when U.S. District Court Judge Rosemary M. Collyer ruled Wednesday that the Federal Deposit Insurance Corp was responsible for any remaining legal claims before WaMu was bought by J.P. Morgan in 2008.

  

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The FDIC and J.P. Morgan have been arguing over who should be required to pay the billions of dollars in mortgage and other claims. J.P. Morgan believes that the FDIC receivership that liquidated WaMu is responsible whereas the FDIC claims that J.P. Morgan has sole ownership since they bought the business. The FDIC states that J.P. Morgan took on the liabilities that were attached to the mortgage loan-securitization trusts and not just the operations from their purchase of WaMu.

J.P. Morgan has already paid a $13 billion penalty to the Justice Department for second mortgages issues. The bank has paid out over $26 billion in the last few years for various crisis-related legal suits and fines so the ruling comes as a relief that they most likely won’t be forced to pay out more.

The largest claim comes from Deutsche Bank National Trust Co for $10 billion on behalf of 100 trusts holding poorly performing bonds that were issued by WaMu. The ruling would place this claim on the FDIC receivership. Bondholders did not like this decision because they are owed $13 billion from WaMu, so if the FDIC pays the claim, there won’t be much money left over for them.

The FDIC and others that are part of the case can still appeal. The full decision will be released later this month.

Source: http://www.wsj.com/articles/j-p-morgan-wins-legal-battle-in-washington-mutual-case-1433365003

Photo: archive.fortune.com