FDIC, JPM Willing to Blame Each Other for WaMu Mess

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Includes: DB, JPM
by: Karl Denninger

Now we're starting to get into some interesting parts of the legal world, as the FDIC and J.P. Morgan (NYSE:JPM) are pointing fingers at each other for WaMu's failure. As The Wall Street Journal reports (subscription required):

J.P. Morgan Chase & Co. (JPM) and the Federal Deposit Insurance Corp. traded barbs again this week over which entity should have to face a lawsuit over mortgage-backed securities owned by failed Washington Mutual Corp.

In court motions, J.P. Morgan argued it never accepted the liability of WaMu's soured mortgage-backed securities in its 2008 FDIC-assisted purchase of the failed bank, while the FDIC alleged J.P. Morgan was "attempting to rewrite history" and should be held liable.

Note that this goes back to the "fire sale" WaMu purchase in the latter half of 2008 -- a deal that, at the time, Jamie Dimon thought was a great idea, and in fact claimed would be dramatically helpful to his institution.

Deutsche Bank (NYSE:DB), however, is after them. Why? Because there are a bunch of crappy mortgages in the "stuff" that JPM got with WaMu, and Deutsche Bank claims they were defrauded. (As an aside, they should know, considering that they were all writing garbage. I wonder why nobody's tried an estoppel claim on that point yet?)

How much are we talking about? Oh, just a "tiny" $10 billion or so. JPM's stance is predictable:

"While Deutsche Bank uses very large numbers, the most important number here is actually zero," the J.P. Morgan filing said. "Zero is the number of contractual provisions that Deutsche Bank actually identifies as having been breached with regard to a specific loan ... And zero is the amount of damages Deutsche Bank can in any event seek to recover on the back of such purported claims."

Uh huh. Now for my question: How many of these loans has JPM/WaMu/whatever cooperated with in an investigation of the original loan files so Deutsche Bank can prove its case?

Why do I suspect the answer is "zero"?

Whether that sort of intentional obfuscation of the evidence will ultimately hold up as a defensive tactic is a good question. In fact, it might be the question, and the only "defense" that has any chance of success through the fullness of time, given the admissions made by Citibank's former chief underwriter.

Stay tuned.