Inside info drive WAMU into Morgan's arm
Did Inside Info Drive WaMu into Morgan's Arms?
by Kirsten Grind Dec 15 2009
An explosive filing in bankruptcy court
alleges JPMorgan used inside information to drive down troubled rival WaMu's stock price before federal regulators forced the sale of the thrift.
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New allegations have surfaced in Washington Mutual's bankruptcy case that JP Morgan used inside information to drive down the price of the thrift.
Image: Reuters
A filing in the Washington Mutual bankruptcy case says that new evidence supports allegations that JPMorgan Chase used access to inside information about WaMu to drive down the bank’s credit rating and share price, scare away other suitors, and arrange to buy the ailing Seattle bank from regulators at a bargain price.
The evidence is contained in a motion filed Monday in U.S. Bankruptcy Court in Delaware by WaMu’s bankrupt holding company, known as WMI, which is seeking to recover billions of dollars lost when regulators seized Washington Mutual and sold it to New York-based JPMorgan Chase & Co. in September 2008.
The 20-page motion cites hundreds of internal documents received from JPMorgan through discovery in the bankruptcy case, including emails between JPMorgan executives and other banks interested in bidding on WaMu and as slide-show presentations discussing the viability of a WaMu purchase.
The motion also cites as evidence a recent Puget Sound Business Journal article that said Washington Mutual had sufficient capital and liquidity to meet regulatory requirements when it was seized and sold.
The motion repeatedly cited allegations made in an earlier federal lawsuit, but that case did not turn up a similar volume of emails and other supporting evidence. The documents only became available when JPMorgan disclosed them in response to a subpoena that the bankruptcy trustees filed in June.
The latest motion now seeks to expand the subpoena to include regulators such as the Federal Deposit Insurance Corp., the Office of Thrift Supervision (OTS), the U.S. Treasury Department, the Federal Reserve, other banks that considered buying Washington Mutual, Goldman Sachs in its capacity as an adviser to WaMu, credit-rating agencies, and other banks involved in lending to WaMu.
The Business Journal also had requested documents from regulators regarding their decision to seize WaMu. Regulators either denied those requests or blacked out most of the documents they released.
JPMorgan and OTS declined to comment. Lawyers who filed the motion on behalf of WMI also declined to comment, citing pending litigation. The FDIC couldn’t immediately be reached for comment.
According to the motion, information obtained through the JPMorgan subpoena suggests JPMorgan held meetings with WaMu’s regulators in 2008 about WaMu and “made presentations regarding Washington Mutual that included sensitive Washington Mutual information.”
JPMorgan also sought and received government assistance in the deal, the motion contends. It says JPMorgan received unusually favorable terms for its acquisition, access to confidential information about WaMu that the bank itself was reluctant to disclose, and regulators’ agreement “to override certain state banking laws that would otherwise prohibit” JPMorgan from acquiring WaMu.
The motion repeatedly cites the federal lawsuit filed earlier this year by WaMu bondholders, which alleges that JPMorgan misused its “insider” status and access to regulators to leak confidential information about the bank and “wrongfully influence government policy and actions,” according to the motion.
According to the motion, it appears that JPMorgan knew as early as September 12, 2008, that WaMu would be offered up as a distressed-asset sale. At the time, WaMu was only one day into its final bank run, according to previous reports in the Business Journal. WaMu’s main regulator, the OTS, has cited that bank run and insufficient liquidity as the reason for closing the bank.
“In early September, three weeks before (WaMu) was seized, FDIC officials informed (JPMorgan) that “the FDIC was carefully monitoring (WaMu) and that a seizure of its assets was likely,” the motion said.
Kirsten Grind is a staff writer for the Puget Sound Business Journa
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