JP Morgan settled up with Fannie Mae and Freddie Mac. JPM will pay:
- ~$1.0B for loans made by Morgan
- ~$1.8B for loans made by Bear Stearns
- ~$1.2B for loans made by Washington Mutual
- ~$1.1B to buy back loans underwritten by JPM
- ~$5.1B total package
That’s from the article J.P. Morgan Settles With FHFA, in the Wall Street Journal.
This is part of the larger $13B package under negotiation earlier this week.
My head scratching continues about why Morgan is on the hook for loans made by other banks it acquired at the urging of the feds. The remainder of the settlement with the Department of Justice is stuck over the issue of whether JPM will get reimbursed by the FDIC for losses on the portfolio they acquired. Typically, that is the way it works. At least that’s my understanding on how acquisitions usually work.
So it is quite obvious that the feds want JPM to pay for mistakes they didn’t make.
The article shows that the FDIC would usually pick up that extra tab but the Justice Department wants language saying that JPM won’t get reimbursed.
Doing so would mean there is a $3B fine for helping out during the ’08 banking crisis.
Here’s the first of a four paragraph section describing that maneuvering:
The Justice Department, however, has been trying to insert language into its deal with J.P. Morgan that none of the costs the bank pays over Washington Mutual will be passed onto the FDIC, said people close to the talks. The Justice Department wants this language in order to avoid a situation in which a government penalty of a bank is essentially extracted from another government agency, the people said.
Another article at the WSJ, this time a blog post, J.P. Morgan Settlement Puts U.S. in Tight Spot, reinforces the point. The deal does call for JPM to pay for mistakes of the acquired firms and they could get reimbursed. The author, Mr. Guerrera, looks at the underlying acquisition document and sees that there is lots of room to make the argument that the FDIC should cover those payments. Such a reimbursement would consume a large portion of the FDIC’s reserves.