Federal Deposit Insurance Corp. (FDIC) is trying to oppose a proposed $1.4 billion tax refund for the second largest U.S. bank JPMorgan Chase & Co. (JPM) in relation to its takeover of banking operations of Washington Mutual in 2008, according to a Wall Street Journal report.
Bankrupt lender Washington Mutual was taken over by JPM for $1.9 billion. The tax refund was expected from a clause in the economic stimulus bill. The law allows companies to apply for tax refunds against taxes paid in the previous five years, instead of the previous two years.
In order to extend the jobless benefits, the corporate-tax-refund approach was included in the economic stimulus bill in November last year. However, it was initially not a part of the bill.
Washington Mutual was seeking the $4 billion cash deposit to repay its creditors worth $7 billion, but FDIC argued that it should take temporary custody of the amount because of losses emanating from the failure of Washington Mutual’s banking operations. On the other hand, JPM argued that it should have the right to the cash as it had acquired the failed institution.
On Mar 12, FDIC, JPM and Washington Mutual came to an agreement. Accordingly, Washington Mutual will receive the cash deposit of $4 billion that was held by JPM when it acquired Washington Mutual. The three entities also agreed to share expected tax refunds worth about $5.6 billion.
Not only JPM but more than 250 companies are seeking tax refunds aggregating $12 billion.
However, recently, FDIC took back its support from Washington Mutual in the latter’s case involving itself and JPM. Also, FDIC has reversed its consent after JPM announced its share of $1.4 billion in the tax refund.
JPM had reported fourth quarter earnings of 74 cents per share, substantially ahead of the Zacks Consensus Estimate of 61 cents. The better-than-expected results were primarily aided by the continued strong performance of the company’s Investment Bank segment.
All segments except Consumer Lending and Card Services delivered solid results during the quarter. However, persistently high levels of consumer credit costs and increased provisions for credit losses were the downside.
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