JPMorgan Chase sued the Federal Deposit Insurance Corporation on Tuesday, striking back against the government weeks after agreeing to pay $13bn to resolve claims that it mis-sold mortgage securities.
The largest bank in the US said it was trying “to recover substantially in excess of a billion dollars” from the FDIC, which managed the receivership of Washington Mutual after the bank failed during the crisis and then sold most of its assets to JPMorgan.
WaMu packaged billions of dollars of bad mortgages into securities and sold them to institutional investors before the crisis. That mis-selling rebounded on JPMorgan, which faced fraud claims from the government over WaMu’s behaviour, which it later settled as part of its record $13bn deal with the Department of Justice and other agencies.
The FDIC declined to comment. Officials at the agency, which guarantees bank deposits against failure and regulates banks, believe JPMorgan took on WaMu’s legal liabilities as part of its acquisition and does not have a claim over $2.7bn in assets that remain in the receivership, according to people familiar with the matter.
JPMorgan’s lawsuit, filed in district court in Washington, claims that the FDIC “wrongly refused to acknowledge or honour its expansive indemnification obligations”.
It said those obligations were contained in a deal between the government agency and JPMorgan, which “protected the FDIC from potentially unprecedented liability and helped ensure the stability of the country’s banking system by enabling the former [Washington Mutual] branches to remain open for business as usual following the failure”.
JPMorgan said it should not be held responsible for the “numerous lawsuits” brought against it over the actions of WaMu “including alleged misrepresentations about loans being securitised”.
It listed 24 suits brought by a variety of investors, for which it said it should not have to take responsibility.
However, missing was the biggest bill from WaMu: the DoJ’s settlement with the bank agreed last month. As part of that settlement, the justice department demanded that JPMorgan give up its right to push the bill to the FDIC.
Other WaMu creditors, many of them hedge funds who bought debt after the bank failed, are keen for JPMorgan to be defeated in its attempt to claim against the FDIC because the bank’s demand is so large. JPMorgan said the $2.7bn funds in the receivership “should be sufficient to satisfy” its claim.
When JPMorgan agreed to the government’s demand for a $13bn settlement last month, Eric Holder, US attorney-general, said: “The size and scope of this resolution should send a clear signal that the justice department’s financial fraud investigations are far from over. No firm, no matter how profitable, is above the law, and the passage of time is no shield from accountability.”