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By David Benoit Of DOW JONES NEWSWIRES NEW YORK -(Dow Jones)- 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. The motions, filed Monday in federal court in Washington D.C., continue the back and forth sparring between the New York banking giant and its regulator over what exactly was included in the frantic purchase of WaMu on Sept. 25, 2008. The deal happened as the FDIC seized the Seattle bank. WaMu's subsequent fall was the biggest bank failure in history. A unit of Deutsche Bank AG (DB) is suing as a trustee for clients over what it claims are a half-million mortgages they hold in securities, arguing that WaMu breached contracts in writing them. That lawsuit, seeking more than $10 billion, named the FDIC and J.P. Morgan as co-defendants. But J.P. Morgan and the FDIC are attempting to first sort out who should have to stand in the crosshairs of the suit. Both sides are asking a judge to dismiss the claims. "Despite its extraordinary gain and continuing profits, [J.P. Morgan] now seeks to walk away from the associated obligations and liabilities," the FDIC said in its motion Monday. "Without question, [J.P. Morgan] succeeded to all of WaMu's interests, rights, obligations, and liabilities." Meanwhile, J.P. Morgan argued in its own filing that the agreement to buy WaMu only held J.P. Morgan liable for the explicit liabilities in the contract. The bank argues the FDIC was to take the liability on anything not included in that agreement. Furthermore, J.P. Morgan argues that even if the court decides the original contract does hold J.P. Morgan liable for those losses, a separate clause in the contract would ultimately make the FDIC liable to J.P. Morgan for them. "Through this action, Deutsche Bank and the FDIC seek to dramatically increase the scope of the liabilities [J.P. Morgan] assumed, in direct contravention of the explicit terms of the ... agreement," the bank wrote. When J.P. Morgan purchased WaMu, at the height of the financial panic, it got a large boost to deposits and branches on the West Coast that have added significantly to its revenue. But J.P. Morgan was also forced to take huge writedowns, including $30 billion on WaMu's home-lending assets. J.P. Morgan also argued that, in the event a judge decides it is ultimately liable, Deutsche Bank's unit doesn't sufficiently prove that the so-called reps and warranties of the bonds, the basic agreements the investors and WaMu signed, were broken and broken willfully. "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." -By David Benoit, Dow Jones Newswires; 212-416-2458; david.benoit@dowjones.com

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