JPMorgan Chase is close to resolving a long-standing legal dispute over its take-over of the regional lender Washington Mutual, a move that would enable the US bank to record a small gain in its next results.
People close to the situation said JPMorgan had agreed to give up its claims over a $1.4bn tax break in exchange for an extra $300m worth of WaMu assets that had been contested by regulators and the bank’s creditors.
The complex agreement, which is still to receive final approval from all parties, would enable JPMorgan to release some of the undisclosed reserves it set aside following its $1.9bn takeover of WaMu’s assets and operations in 2008.
That, in turn, could result in a gain worth millions of dollars to be recognised in the second quarter of the year, according to people close to the situation.
A settlement could also pave the way for a creditors’ vote on the reorganisation of the rump of WaMu that was not bought by JPMorgan and had to seek bankruptcy protection under the auspices of the Federal Deposit Insurance Corporation.
The dispute between JPMorgan, the FDIC and WaMu creditors centres on tax breaks related to losses incurred by the Seattle-based lender in 2008 and 2009.
A law passed last year allows US banks to apply losses to taxes paid in the previous five years.
JPMorgan claimed it was entitled to a $1.4bn tax break because it bought WaMu’s assets and operations.
WaMu’s bondholders and the FDIC argued that JPMorgan should not receive the funds because of a provision in the law banning companies that were given government bail-out money from benefiting from the tax breaks.
JPMorgan got $25bn from the troubled asset relief programme in 2008, which it subsequently repaid.
In exchange for giving up on the tax break, JPMorgan would receive $300m in other funds that were not covered by the provisions on tax losses, according to peope close to the situation.
JPMorgan declined to comment. The FDIC declined to comment on the details of the settlement.
However, at a court hearing on WaMu’s bankruptcy on Wednesday the regulator said “the basic provisions of the draft settlement agreement …positively address the major issues of concern to the FDIC”.
“The FDIC expects that the drafting on the remaining issues and the obtaining of all necessary internal approvals should be completed by the end of this week,” it added.
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