JPMorgan May Score $1.4 Billion Refund for WaMu Losses


JPMorgan Chase (JPM) could bank a rich $1.4 billion tax refund this year, owing to Washington Mutual's 2008 losses and an oft-overlooked business tax break that was squeezed into the 2009 Stimulus Bill, according to a report in Wednesday's Wall Street Journal.

It's not a done deal yet -- JPMorgan is reportedly still negotiating with the Federal Deposit Insurance Corp. and its bondholders about the refund. But if all goes its way, the bank could reap up to $1.55 billion for taking over Washington Mutual's money-losing bank operations back in 2008. A portion of the total would be allocated to cover legal claims related to the takeover, but the rest -- $1.4 billion -- could go straight to JPMorgan's coffers.

Washington Mutual bondholders object to JPMorgan's claim, arguing that the bank already scored a handsome government loan under the TARP program, and bailout beneficiaries are not supposed to receive stimulus-related tax refunds. (JPMorgan repaid $25 billion in TARP funds in June 2009.) Also, given that JPMorgan paid a mere $1.9 billion for Washington Mutual in 2008, the tax break would essentially give the company most of its money back from that transaction.

The issue has surfaced just a couple weeks after Washington Mutual reached a settlement with JPMorgan and the FDIC over $4 billion in disputed deposit accounts. Under the settlement, JPMorgan agreed to turn the money over to Washington Mutual, but deducted $172 million for its share of tax refunds. As part of that deal, JPMorgan was also supposed to get 70% of the tax refund owed to Washington Mutual for 2008 losses.

The Stimulus Bill's tax break certainly isn't intuitive: If Joe Taxpayer tried to claim two-year-old losses in his current-year taxes, he'd get a threatening letter from the IRS. But because this law has supposedly helped keep many corporations afloat, it may have helped "stimulate" the economy. Liz Claiborne (LIZ) CEO William McComb, for example, told the The Wall Street Journal that because of a $167 million refund, the retailer can keep 25 stores open this year, some of which might have otherwise closed.