JPMorgan (JPM) is about to get what it deserves–a $1.4 billion tax refund from the United States. Jamie Dimon, the CEO of the bank, may be more clever than his peers, but in this case the firm is using a simple rule that would apply to any financial institution.

While Washington and taxpayers may object to the big bank getting a huge government benefit, JPM can make a compelling case that it should get it.

The refund is based on losses which occurred at Washington Mutual, which JPMorgan took over as WaMu stood on the edge of insolvency. According to The Wall Street Journal, “the regulation involved letting companies apply losses from 2008 or ’09 against taxes paid in the previous five years, instead of the previous two years.” WaMu had huge losses in 2008. The paper reports that JPM is in talks with the FDIC about the refund.

Part of the tax benefit could go to WaMu bondholders. WSJ reports “that would let J.P. Morgan claim more than half of the total, to be held in an FDIC receivership as part of a larger settlement with bondholders. J.P. Morgan could dip into that pot to satisfy certain claims related to WaMu’s collapse.”

At issue is whether JPM, which took some substantial risk in buying WaMu, should get a financial “reward” as part of its actions. Public opinion would certainly be against that because the benefit is paid with taxpayers’ money. Congress and the Administration will have to fight a PR battle if the big bank gets a dime from the federal government. But, those objections still dodge the issue of whether JPMorgan acted in the best interests of the financial system when it agreed to a deal to take over WaMu,  which kept some of the flood of the credit market collapse from drowning WaMu. If WaMu had failed without JPM’s help, the consequences could have been spectacularly bad.

JPM may get a tax benefit from WaMu’s losses. If it does, it will merely be a modest reward for a risky decision it did not have to take.

Douglas A. McIntyre

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