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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

September 28, 2010 at 11:45 AM

JPMorgan looks for another advantage in the WaMu deal

The Washington Mutual saga continues as JPMorgan Chase reportedly wants to use FDIC funds to cover any new legal claims it might face as a result of acquiring the assets of the defunct thrift.

Quoting unnamed sources, the Wall Street Journal reported today, “In a series of previously undisclosed letters sent to the Federal Deposit Insurance Corp., the nation’s second-largest bank by assets warned it could seek billions in legal protection from the FDIC receivership that liquidated the Seattle-based thrift two years ago.” In September 2008, JPM paid only $1.88 billion for WaMu’s assets.

JPM declined to comment, but the letters would be firing a shot across the FDIC’s bow should any new suits find the bank responsible for claims. The WaMu acquisition has been sweet for JPM. It added $188 billion in deposits and more than 2,200 branches, allowing JPM to complete a national network.

The fair value of the assets was higher than what JPM paid, and the bank has said it could earn $25.5 billion from WaMu loans. Analysts see JPM even coming out on top of WaMu’s mess of house loans as conditions improve. RBC Capital Markets banking analyst Gerard Cassidy in Portland, Maine, told the Journal, “We would expect this transaction to be extremely profitable to JPMorgan”

Shareholders lost everything. And bondholders were wiped out, a more unusual outcome. Some of those bondholders remain in a fighting mood — hence the JPM move to have any claims covered (especially a Deutsche Bank suit against JPM and the FDIC).

JPMorgan chief Jamie Dimon has said nobody else wanted WaMu, the implication being that he was doing us a favor during the great panic. Yet an unanswered question is whether the healthy part of Washington Mutual after which Mr. Dimon so lusted could have been stood on its own by the feds as an independent institution based in Seattle, rather than using taxpayer money to help the Too Big To Fail banks get bigger still. Seattle still suffers from D.C.’s fealty to the big banks and unwillingness to think differently.

I would say Mr. Dimon laughs all the way to the bank, but he’s already there.

Today’s Econ Haiku:

Southwest makes a deal

That makes Wall Street spirits soar

Passengers? We’ll see

Comments | More in Banking, Washington Mutual

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