(Update 1) Here’s a twist on government bank seizures: the holding company for Washington Mutual is suing the Federal Deposit Insurance Corp. for more than $13 billion in damages, alleging that the bank regulator violated the bank holding company’s rights in forcing the sale of banking assets to JP Morgan Chase & Co. (JPM) at a “fire sale” price. The lawsuit was first reported by Reuters on Saturday afternoon, available here. Regulators seized the Seattle-based thrift last September, making it the largest bank failure in U.S. history. The bank’s assets were sold to JP Morgan for just $1.9 billion, a price that Washington Mutual lawyer’s say was too low, according to the AP report. JP Morgan did not assume WaMu’s liabilities in the takeover of WaMu, including claims by equity or any senior or subordinated debt holders — but it did agree to absorb WaMu’s troublesome loan portfolio, famously heavy on option ARM mortgages. The deal made JP Morgan into the largest U.S. bank by deposits. At the time WaMu was shuttered, the thrift held a $231.1 billion loan portfolio at the end of Q2 2008 included $52.9 billion in option ARMs and another $62.5 billion in home equity loans and lines of credit. Total nonperforming assets jumped to $11.2 billion at the end of the second quarter, as well, up 22 percent from the first quarter and nearly three times the NPAs recorded one year earlier. JP Morgan said it would write down WaMu’s loan portfolio by roughly $31 billion, to account for losses inherent in the book of business. For its part, JP Morgan posted a $702 million, or 7 cents per share, fourth-quarter 2008 profit — largely due to a $1.1 billion boost from its acquisition of Washington Mutual — compared to a profit of $3 billion, or 86 cents a share, in the same period last year. Without WaMu, JP Morgan said it would have lost 28 cents a share during the fourth quarter. Write to Paul Jackson at paul.jackson@housingwire.com. Disclosure: The author held various put option contracts on JPM when this story was published, and not other relevant investment positions. Indirect holdings may exist via mutual fund investments.

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