Multi-billion Deal between Chase, Feds May Collapse A $13 billion deal being worked out between JPMorgan Chase and the federal government could collapse because of disagreement over a criminal probe of the bank and its efforts to be reimbursed by the Federal Deposit Insurance Corporation, The Wall Street Journal reported Oct. 29. The disagreement revolves around whether JPMorgan Chase or the FDIC ultimately is responsible for liabilities linked to Washington Mutual, which Chase bought during the financial crisis. Chase attorneys also want a settlement that gives the bank additional legal protection from future criminal probes. The Journal reported that the U.S. Department of Justice isn’t willing to accept such a deal. Part of the multi-billion deal already has been resolved, however. Chase agreed Oct. 25 to pay $1.5 billion to the Federal Housing Finance Agency over allegations that the bank sold Fannie Mae and Freddie Mac faulty mortgage-backed securities. The dispute between the Justice Department and Chase centers around what exactly the bank purchased when it assumed operations of Washington Mutual. Chase claims it signed an agreement with the FDIC protecting it from future liabilities related to the less than $2 billion purchase of the failed thrift. However, the FDIC said Chase took on Washington Mutual’s problems as part of its purchase. At issue is how the various costs of poor-performing mortgage bonds issued by Washington Mutual will be handled by participants in the tentative pact. Chase has argued on behalf of pursuing a receivership run by the FDIC for Washington Mutual-related liabilities, which are estimated to be about $4 billion. That amount is more than the FDIC’s receivership fund has on hand, the Journal reported. The Justice Department said it doesn’t want any costs being passed along to the FDIC for fear that such a deal would set a precedent where a government agency pays a penalty imposed on a bank by the government. The Journal also reported that Chase and the government continue to disagree on the value of the deal they’re trying to negotiate. Chase lawyers have said there still is $8 billion on the table because of the bank’s $5.1 billion settlement with the FHFA. However, government attorneys say the FHFA portion of the deal only is worth $4 billion and that Chase cannot count the $1.1 billion it paid to resolve bank repurchases of poor performing mortgages from Fannie Mae and Freddie Mac as part of the settlement amount. If the deal doesn’t go through, the Justice Department likely will move ahead with a civil lawsuit against Chase as well as a criminal probe into residential mortgage-backed securities the bank issued from 2005-07. AI/Rueters
Posted on: Fri, 08 Nov 2013 19:18:56 +0000
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