Little Rock Ok, you remember that we were skeptical when news of the $13 billion record breaking settlement between JP Morgan Chase and the Justice Department was announced until the details became clearer. I just wasn’t sure the leopard could change its spots by buying a new paint job no matter what the price. Now, the settlement seems to be in danger of unraveling as the details become clearer and the chicanery of the Chase lawyers and accountants in trying to weasel out of really paying the penalty as opposed to having their public relations department put out press releases about direct negotiations between CEO Jamie Dimon and Attorney General Eric Holder.
First, Chase jumped the gun on Justice and cut a separate deal with the Federal Housing Finance Agency (FHFA) for $5.1 billion which got Justice hopping because they are insisting that only $4 billion of their $13 billion resolves those claims. It gets sketchy when it becomes clear that Chase was trying to fudge $1.1 billion of an earlier settlement where it agreed to repurchase bad loans it had bundled and sold to Fannie Mae and Freddie Mac back when they and others were getting away with everything before the housing bubble burst. Essentially they wanted two dollars of credit on this deal for a dollar really paid.
Holder to his credit is reportedly balking at anything that would allow Chase to try to shift the cost of the settlement unto the FDIC, the federal deposit insurer, not wanting one federal settlement to be paid by another federal agency. Meanwhile according to insiders talking to the Wall Street Journal, Chase would take all $5.1 billion of the FHFA settlement as a tax deduction, reducing the bite, and at its effective tax rate, clawing back a savings of $1.5 billion in taxes, essentially transferring part of the penalty to the US taxpayers for its own giddy, avarice and community destruction. Oh, and of course, Chase thinks that there may be some other big chunks they can take as tax deductions as well and they are looking hard for them. Now, these kinds of maneuvers sound more like the Chase we all know and rarely love.
Justice since the first news of a deal surfaced was quick to say that none of the settlement had to do with Chase’s purchase of Washington Mutual and other assets after the meltdown, partly as a response to an intemperate, whack editorial in the Journal that tired to argue that Dimon was actually Joan of Arc and was being punished now for having done the government a favor back when. Justice the day after the editorial released some more information about the deal saying nada had to do with Chase’s acquisition of failing institutions.
I suspect that is all part of why this deal has now unraveled a bit. It turns out that Chase is also trying to “cost out” another part of this settlement by disagreeing with the FDIC about responsibilities for some of Washington Mutual’s bad loans and bonds and seeing if they can tap an FDIC $4 billion reserve fund for what Chase is saying is $5 billion or more in liabilities they don’t want to own up to. Talk about doing a hustle!
My bet is that they have gone too far and pushed Dimon out on the limb publicly as having reached out to Washington and virtually singlehandedly worked out a deal with Holder for them to be able to let this whole house of cards collapse, so a deal of some sort will come back together. They may have just found that bargaining in bad faith doesn’t work with Holder. He seems to know his cards well and be unwilling to fold them or kiss the Wall Street rings.
Regardless when it comes to these bums, if he’s not our hero, he’s definitely about our only hope.