Reports » US
US stock market daily report (December 18, 2013, Wednesday)
JPMorgan Chase & Co. (JPM-NYSE) filed a lawsuit in U.S. District Court in Washington, D.C. against the Federal Deposit Insurance Corp. on Tuesday, alleging the FDIC receivership failed to honor its obligations. At the encouragement from regulators, JPMorgan purchased Washington Mutual with hopes to stabilize the banking system at a pivotal moment during the financial crisis. The lawsuit is part of the ongoing battle between JPM and the FDIC over the September 25, 2008 purchase of Washington Mutual Inc. ‘s banking operations. The final agreement between the two lacked specific liabilities included and excluded from the sale. JPM was able to expand its network across the USA for the first time ever when the firm took over Washington Mutual. The failure of Washington Mutual was the largest commercial-banking failure in U.S. history.
JPM and FDIC have argued relentlessly over who must shoulder the burden for legal claims stemming from decisions Washington Mutual made prior to the deal. JPMorgan contests that the FDIC receivership that liquidated Washington Mutual in 2008 should pay any claims while the FDIC maintains that it is the responsibility of JPMorgan. Of the remaining $2.7 billion in the receivership, $1.88 billion is what JPM paid for Washington Mutual’s branches and deposits - of which JPM wants a portion. FDIC maintains its stance that JPMorgan inherited the problems including mortgage bonds that are the subject of numerous lawsuits from investors.
In the lawsuit, JPM said in the 39-page purchase agreement, the FDIC pledged to protect the firm from such liabilities. In the agreement, JPMorgan agreed "to pay, perform and discharge all the liabilities of the Failed Bank which are reflected on the Books and Records of the Failed Bank as of Bank Closing" however, "Books and Records" was not defined. Also, in the agreement is the statement that the FDIC receivership "agrees to indemnify and hold harmless" JPMorgan for liabilities of Washington Mutual that "are not assumed" by JPM. The FDIC was protected "from potentially unprecedented liability and helped ensure the stability of the country's banking system", in exchange for the buyout from JPMorgan. JPMorgan expects the FDIC receivership to cover potential damages resulting from a private lawsuit brought by Deutsche Bank National Trust Co. seeking nearly $10 billion on behalf of more than 100 trusts holding poorly performing bonds previously issued by Washington Mutual, although the pair had previously disagreed over who ultimately is liable for those claims.
Justice Expected to File Civil Fraud Charges
Civil fraud charges will be filed against against Citigroup, Inc. (C-NYSE) and Bank of America Corporation (BAC-NYSE) Merrill Lynch unit by the U.S. Justice Department over their sale of flawed mortgage securities ahead of the financial crisis. Justice continues their probe against Royal Bank of Scotland Group plc (RBS-NYSE) and Credit Suisse Group AG (CS-NYSE). The probes stem from a government task force created in early 2012 by the Obama administration into the sale of shoddy home loans repackaged for investors. Reports are that the investigation into Citigroup is being performed by lawyers at the U.S. Attorney's offices in Brooklyn and in Colorado, with both wanting the high-profile case to be filed in their district.
Justice Department is strongly moving forward to holding banks accountable for behavior prior to the financial crisis. Investigators in the dozens are dedicated to bringing similar lawsuits against other major Wall Street firms.
Allegedly, investigators have compiled evidence that shows investors lost tens of billions of dollars after purchasing securities Citigroup had marketed as safe even though the bank had reason to believe otherwise.
Goldman Sachs Group, Inc. (GS-NYSE) disclosed it is under investigation by Justice Department with potential future claims resulting in a "significant increase" in the firms liabilities.
Sources say that evidence shows Credit Suisse's mortgage lending arm ignored red flags about its processes for signing off on loans and pushed to increase the output of them for the bank to bundle into securities.
The U.S. banking industry, which faces a range of mortgage-related lawsuits, has contended that many of the alleged investor losses can be attributed to the financial crisis and that they should not be held liable for marketing a variety of mortgage securities that ultimately soured.
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