JP Morgan in line for huge windfall after tax break claim

JP Morgan Chase, the retail and investment banking giant, is in line for a $1.4bn windfall from the US taxpayer, as a result of a little-noticed provision in an economic stimulus bill that went through Congress last year.

The bank, which posted a profit of almost $12bn for 2009, is believed to be close to a deal with regulators that will unlock a tax perk given to businesses in a law passed last November. The legislation excluded banks that received bailout money but JP Morgan says it is entitled to the money via a subsidiary, Washington Mutual.

Its $1.4bn share will be a significant proportion of the total, which is expected to be about $33bn. Other big recipients have included housebuilders and retailers. Under the tax break, companies could offset five years of profits against their losses of 2008 and 2009, instead of just the usual two. That means the biggest benefits go to those with the biggest crisis-time losses.

The law was not part of the flagship US stimulus bill of 13 months ago, when it was ruled out because the independent Congressional Budget Office deemed it one of the least economically efficient ways of boosting GDP.

However, it was resurrected as a political counterpoint to the unemployment benefits demanded by Democrats in a smaller, second stimulus package last November.

JP Morgan bought WaMu's banking business as it teetered on the brink of collapse in 2008. The bankrupt rump of WaMu has claimed a $2.6bn tax break and JP Morgan agreed with creditors that it could have a little over half of that.

The US banking regulator is close to signing off on the release of that money, to be used by JP Morgan to settle legal claims, it was reported yesterday.