The bankrupt company, Washington Mutual Inc.’s (WaMu) 18 months long battle with the federal regulators, Federal Deposit Insurance Corp. (FDIC) and JPMorgan Chase & Co. (JPM) came to a resolution on Mar 12, whereby WaMu has agreed to accumulate about 6 billion as against the $20 billion to be collected from lawsuits, tax refunds and disputed cash deposits that were estimated by the shareholders of WaMu.
According to the terms of the resolution, fixed after the dispute between the WaMu, FDIC and JPMorgan, WaMu will receive the $4 billion of cash deposit that was held by JPMorgan when it bought Washington Mutual Bank for $1.9 billion in Sep 2008. The three entities will also share two tax refunds expected to be worth about $5.6 billion. In addition to turning over the $4 billion in deposits, JPMorgan has agreed to purchase Visa Inc. (V) shares from WaMu for $50 million.
The matter caught fire when WaMu’s bank was taken over by JPMorgan. While WaMu wanted to seek for the $4 billion cash deposit to repay its creditors worth $8 billion, FDIC argued that it should take temporary custody of the cash because of losses caused by the failure of WaMu’s bank. On the other hand, JPMorgan alleged that it should have a right to the cash as it had bought the failed bank.
Following the resolution, the money granted to WaMu will be used to repay $7 billion in debt, mostly owed to bondholders who support the settlement, which leaves a paltry sum for the shareholders. However, the judge must approve the settlement, which will be filed by Mar 26 with the court as a part of the WaMu’s liquidation plan.
We believe that JPMorgan could be hit hard with the outcome of the legal dispute since it is already significantly exposed to risks and uncertainties associated with the integration of its acquisitions. Given the continued market volatility and uncertainty, the company may need to take additional markdowns and provide for allowances for loan losses on the assets and loans acquired from the Bear Stearns merger and from the acquisition of WaMu’s banking operations.
Overall, while we anticipate continued synergies from the JPMorgan’s diversification and strong capital position, increasing provisions and a pressured credit quality will drag down future earnings.
On Friday, the shares of JPMorgan closed at $43.15, down 0.07%, on the New York Stock Exchange.
Read the full analyst report on “WAMU”
Read the full analyst report on “FDIC”
Read the full analyst report on “JPM”
Read the full analyst report on “V”
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