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JPM : Ton of Lawsuits / The Conspiracy Theory

|Includes:JPM, WMIH Corp. (WMIH)

Big businesses see more than their fair share of lawsuits, after all they have deep pockets which make them targets for anyone looking for a payday. But JPM (JP Morgan) CEO was quoted recently, "If you want to have conspiracy theories, that won't fly..there are tons of lawsuits, and we're going to defeat them all."

Conspiracy theories? Ton of Lawsuits?  Sure, big companies, especially mega-banks, are the target of disgruntle employees, broken contracts, failure to pay, etcetera – but .."conspiracy theories and a ton of lawsuits.."– now that’s worth more than a passing glance. Why would a CEO be caught foot-in-mouth saying something like that?

Anyone who follows JPM is most likely aware that JPM’s lawyers are busier than a long-tailed cat in a room full of rocking chairs. I’ve lost count of the number of lawsuits JPM is currently litigating but two big ones surface as the cream of the crop. There is the Lehman Brothers case where JPMorgan Chase stands accused of precipitating the collapse of American investment bank by freezing Lehman assets days before it filed for bankruptcy protection, some say that JPM in fact made Lehman insolvent.

The second, and the one that I’ve been following, is Washington Mutual’s (WMI) bankruptcy case, where JPM basically argues that they purchased 300B in assets and a 4B cash deposit for 1.88B on September 25, 2008.

Where is the conspiracy – well, for starters’ business contracts/purchases are best described as a “meeting of the minds” followed by the legal tenet of “clean hands” and this is where it gets sticky for JPM. In addition, conspiracy theories usually get started when things don’t add up but it (the theory) needs a catalyst, something that makes one go:

1) "huh?",
2) "what?",
3) "wait a minute…"

The catalyst starts like this, first the deal (if it remains unchanged) may be one of the most lopsided business deals every made - the best analogy (I can come up with and as crazy as it sounds) of the case being put forth by the JPM legal team is;

“We purchased your house (asset worth 300K) and we purchased along with that asset your banking account (that contained 4K), plus some other assets (your 401K, etc) for 1.88K.”

Of course JPM immediately does a little bookkeeping magic and depreciates the value of the house to match today’s housing market but fails to point out that the asset has better long term value as a rental property and they will eventually make more than 300K. Although, it must be said that JPM can’t help but brag about this in public remarks and there you have your “huh?” – The beginning of a theory…

But the problems/catalyst doesn’t stop there – sure the deal was lopsided but if it’s between two businesses who is to say what actually transpired. Enter the FDIC, the OTS, OCC and conflicting details related to dates and other public comments made by those parties and JPM’s CEO, Mr. Dimon.

The dates are worthy of a second look as they layout a series of events that tell more of the truth than the parties themselves. The general public knows that WMB and WMBfsb (which by most accounts was solvent) was placed into receivership by the FDIC and sold to JPM on September 25, 2008.

The public may also know that CITI placed a bid to purchase the banking assets of WMI. What they don’t know is that on September, 19, 2008, the FDIC was already in deep communications with JPM about purchasing the “whole bank” assets of WMI and that these discussions were taking place without the knowledge of WMI. Plus the general public may have heard claims by JPM that 'they' only had 2 days to review and prepare for the bid. This simply isn’t true. There you have your “what?”

In a recent letter, “…Mr. Dimon was asked how banks can win back the trust of the American people. He suggests that bank leadership should foster a culture within their respective organizations "that focuses on integrity, strong execution, quality products, long-term value creation, and doing the right thing". But I digress…

We need the final “wait a minute…” Much of the ‘conspiracy theory’ comes out of Texas and is being checked and double-checked by Quinn and crew. So, the “huh” moment is the dollar amounts, the “what” moment is the back-door dealing and the “wait a minute…” moment is this:

If the deal were not lopsided enough, JPMc claims it owns the Legacy Rabbi Trusts, Pension and 401(k) plans, the BOLI and Split Dollar policies and some 3 million plus Visa shares. These instruments were clearly by and for the benefit of WMI and its employees but were somehow stripped from the WMI holding company and included in the sale of the “whole bank”.

So the new analogy would be akin to; the above analogy for the house purchase +plus+ JPM also wants the assets of your business to be included in the 1.88K price...

Wait a minute…………

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Stocks: WMIH, JPM