WaMu Bondholders Lose Case Against JPMorgan

WASHINGTON (CN) - JPMorgan Chase is not liable to Washington Mutual bondholders whose assets were rendered worthless when the bank failed in the 2008 financial crisis, a federal judge ruled.

Former bondholders of Washington Mutual Bank, or WaMu, sued JPMorgan Chase, the company that acquired WaMu's assets when the bank collapsed after securitizing bad home loans that cost investors billions.

When it failed, WaMu was the largest savings-and-loan association in the U.S with more than $188 billion in deposits and 2,200 branches nationwide.

JPMorgan Chase bought WaMu's assets and certain liabilities for $1.9 billion in 2009.

The purchase agreement signed by the FDIC and JPMorgan states that the company assumes and agrees to pay "all of the liabilities of the failed bank which are reflected on the books and records of the failed bank as of bank closing."

However, WaMu investors' bonds were not among the liabilities sold to JPMorgan Chase, and thus became essentially worthless.

In their lawsuit, "plaintiffs posited a conspiracy among JPMC, federal regulators, and some WaMu employees to drive down WaMu's value and expose it to federal takeover," according to a March 4 ruling from U.S. District Judge Rosemary Collyer.

"The alleged conspiracy arose after JPMC's efforts to acquire WaMu were rebuffed. The goal of the alleged conspiracy was to engineer WaMu's downfall, drive it into FDIC receivership, and thereby allow the sale of its valuable assets to JPMC at a 'fire sale price' without liabilities," the ruling states.

But after years spent in discovery, "plaintiffs can allege no conduct that is actionable under New York law as tortious interference with an existing contract," Collyer ruled last week.

The judge found that, while the bondholders clearly suffered damages to the value of their holdings, there is no evidence that JPMorgan Chase's pre-receivership misconduct breached their bond contracts to cause their losses.

Collyer also ruled in JPMorgan Chase's favor last year, finding that the bank was not required to assume responsibility for WaMu's unbooked mortgage repurchase liabilities in a suit brought by Deutsche Bank.

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