December 18, 2013 - 6:09 AM
JPMorgan is suing the Federal Deposit Insurance Corp. to recover more than $1 billion tied to its purchase of Washington Mutual when that bank failed in 2008.
In a federal court complaint, the New York bank said that the FDIC failed to honour obligations under the Washington Mutual agreement, and that has subjected JP Morgan to massive liability.
The FDIC became the receiver for Washington Mutual, during the largest bank failure in U.S. history. JP Morgan Chase & Co. said the FDIC then made promises to indemnify or protect the bank against liabilities if it stepped in.
JP Morgan said in a court filing Tuesday that the FDIC then declined to acknowledge that claims against JP Morgan for Washington Mutual's conduct should have been claims against the receivership.
The FDIC did not immediately return calls seeking comment from The Associated Press early Wednesday.
The Washington Mutual receivership's assets are about $2.75 billion, according to JPMorgan.
JP Morgan has entered into a series of legal settlements over sales of mortgage-backed securities in the years preceding the financial crisis. As the housing market collapsed between 2006 and 2008, millions of homeowners defaulted on high-risk mortgages. That led to billions of dollars in losses for investors who bought securities created from bundles of mortgages.
Last month, the bank reached a $4.5 billion settlement that covered 21 major institutional investors
Most of JP Morgan's mortgage-backed securities came from Washington Mutual and the investment bank Bear Stearns, which it also acquired in 2008.
The bank has been negotiating with the U.S. Justice Department to resolve U.S. government claims that JPMorgan misled mortgage finance giants Fannie Mae and Freddie Mac about risky mortgage-backed securities.
The bank said in October that it set aside $9.2 billion in the July-September quarter to cover legal costs.
Shares of JPMorgan climbed 17 cents to $55.89 Wednesday before markets opened. The shares have climbed nearly 27 per cent so far in 2013.
News from © The Associated Press, 2013