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The Buck Stops...Where?

Headquarters of J.P. Morgan Chase and Co. in New York.

Headquarters of J.P. Morgan Chase and Co. in New York.

Photo by Daniel Acker/Bloomberg via Getty Images

Lawyers for J.P. Morgan Chase & Co. in January did what lawyers do best — fired off a letter loaded with foreboding and unloading responsibility on behalf of their client. The letter was to the Jefferson County Commission, the folks for whom the Wall Street investment bank refinanced $3.2 billion in sewer debt.

The Birmingham News recently reported the letter, dated Jan. 31, and its exigencies.

“JPMorgan demands that Jefferson County agree to indemnify and hold JPMorgan harmless for any losses or costs, including attorney’s fees and expenses sustained by JPMorgan,” wrote Mary Beth Forshaw, an attorney at Simpson Thatcher & Bartlett LLP, representing J. P. Morgan.

The losses J. P. Morgan wants to pass on to Jefferson County — up to $778 million, the bank says — would be the fallout if bond insurers are successful in court in showing that they were hoodwinked by J. P. Morgan. 

Syncora Guarantee Inc. and a unit of Assured Guaranty Ltd. have filed complaints in a New York state court claiming their underwriting agreements with the bank on its Jefferson County deal were undermined by $3 million in payments J.P. Morgan representative made to friends of county commissioners in order to secure the underwriting business. They also claim the bank hid from bond insurers an engineering report that showed the sewer system wouldn’t be able to pay its debt.

J.P. Morgan refinanced Jefferson County's sewer debt in 2002 and 2003. That debt obligation — larded with interest rate swap derivatives — blew up with the credit crisis beginning in 2007, pushing the county to the brink of that would be the largest municipal bankruptcy in U.S. history.

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