In a major development, JPMorgan Chase & Co. JPM has partly won a long drawn legal battle, avoiding a portion of the liabilities related to the acquisition of Washington Mutual Inc.’s banking operations in 2008.
Washington Mutual (WaMu) was one of the nation's largest thrift institutions when it failed in 2008. FDIC was appointed as the receiver for WaMu, and later JPMorgan bought the bank for $1.9 billion. For the last several years, JPMorgan and the FDIC have been engaged in a tussle over who is liable for WAMu’s liabilities.
On Wednesday, U.S. District Judge Rosemary Collyer issued the two-page order in a lawsuit filed by Deutsche Bank AG DB in 2009. The lawsuit claimed around $10 billion damages from JPMorgan and FDIC for the WaMu securities that were backed by faulty mortgages. The opinion of the judge is under seal and a public version will be available by Jun 17.
Collyer stated in the order that JPMorgan was liable for the disputed mortgages “only to the extent that Washington Mutual Bank reflected such liabilities at a stated book value” on WaMu’s books as of Sep 25, 2008. She ruled that the FDIC must shoulder some of the WaMu related claims.
The FDIC had argued that JPMorgan assumed the obligations of WaMu "irrespective of a book value cap." JPMorgan argued its liabilities were to the extent stated in the 2008 purchase agreement with the FDIC and FDIC should pay for any claims arising from the case.
Collyer also ruled that JPMorgan was liable for mortgage repurchase liabilities of Washington Mutual Mortgage Securities Corp., a unit of WaMu which JPMorgan acquired.
Notably, JPMorgan’s $13 billion settlement in Nov 2013 with the Justice Department related to mortgage-backed securities is not affected by Wednesday's decision.
The latest ruling undoubtedly brings some relief to JPMorgan as the company is likely to save billions of dollars that could have stemmed from the matter.
Currently, JPMorgan carries a Zacks Rank #2 (Buy). Some top-ranked stocks in the finance space include Northern Trust Corporation NTRS and Central Valley Community Bancorp CVCY. While Central Valley sports a Zacks Rank #1 (Strong Buy), Northern Trust carries the same rank as JPMorgan.
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