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Originally published April 1, 2009 at 12:00 AM | Page modified April 1, 2009 at 12:06 PM

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WaMu staff promised retention bonuses to aid JPMorgan transition may face big tax

Hundreds of former Washington Mutual employees, expected to lose their jobs this year after working temporarily as part of JPMorgan Chase's transition team, could get winged by the congressional shotgun blast aimed at recouping multimillion-dollar bonuses paid to executives at insurance giant American International Group.

Seattle Times business reporter

Hundreds of former Washington Mutual employees, expected to lose their jobs this year after working temporarily as part of JPMorgan Chase's transition team, could get winged by the congressional shotgun blast aimed at recouping multimillion-dollar bonuses paid to executives at insurance giant American International Group.

That's because the retention bonuses JPMorgan Chase promised those workers to get them to stick around would be taxed heavily under either of two bills in the Senate.

The bills were a response to popular outrage after the disclosure last month that AIG, which has received more than $170 billion in federal bailout aid, paid $165 million in bonuses.

Much of that money went to employees in the AIG unit that sold the complex financial instruments blamed for getting the insurer into trouble in the first place.

Although momentum on the bonus-tax bills appears to have slowed, former WaMu workers are concerned they might lose much of the money they were counting on to tide them over after they're laid off.

"These are not the big decision-makers leading a lavish lifestyle," said one transitional employee who spoke only on condition she not be identified. "These are regular people."

After word of the AIG bonuses spread, an outraged House quickly passed a bill aimed at recovering them.

Ninety percent tax

The measure, now in the Senate, would slap a 90 percent tax on bonuses given to employees of companies that received more than $5 billion in federal bailout money (including JPMorgan Chase).

The tax would apply to all workers whose household adjusted gross income exceeds $250,000.

The Senate also is considering another version. That bill — whose co-sponsors include Sen. Maria Cantwell, D-Wash. — would impose a 35 percent tax but apply to a wider range of banks and financial-services companies.

Some 4,200 people worked at WaMu's downtown Seattle headquarters when the thrift was acquired by JPMorgan Chase late last year.


More than 1,500 of those workers have been laid off; 1,900 or so were asked to stay on temporarily but are to be let go this year.

Those transitional workers are accruing a retention bonus equal to their regular pay rate. They get the bonus when they're laid off.

With severance pay and a spouse's salary added in, "... You could easily have a year where a family hit the $250K mark for the first time in their lives ... only to have it confiscated by the federal government in a recession where we need that money to survive a long job search," another WaMu employee wrote in an e-mail.

No ex-WaMu workers contacted by The Seattle Times were willing to be identified in print.

The first employee quoted, scheduled to be laid off in June, said she and her husband are counting on her bonus check to pay for continued health-insurance coverage for themselves and their two children, as well as to cover other expenses until they find new work.

Her husband, who works elsewhere, also expects to be laid off this summer.

"I realize there's anger on the part of a lot of people" over the AIG bonuses, she said.

"But I'm a very, very middle-class employee. I'm not living a lavish lifestyle."

JPMorgan Chase last week sent its employees an e-mail urging them to contact their senators about what it called "retroactive and excessive taxes" prompted by the bonus controversy.

The message, whose authenticity was confirmed by a company spokeswoman, said, "It is unfair to paint all financial institutions with the same broad brush."

Jeffrey Paravano, a former Treasury Department official who now chairs the tax group at Cleveland-based law firm Baker Hostetler, estimated that 10,000 people nationwide would come under the Senate bill, as opposed to 1,000 or so under the House bill.

A similar situation to the WaMu one exists in Cleveland, whose National City Bank was bought by PNC Financial Services Group after PNC received nearly $7.6 billion in bailout money. PNC asked several hundred National City workers to stay on temporarily to smooth the transition, Paravano said.

Crafted to be broad

He said the bills appear to have been drawn broadly to avoid unconstitutionally penalizing a narrow group of people — in this case, AIG executives.

"Clearly, the purpose of the legislation originally was AIG," Paravano said. "But Congress knows how to target things, and I think they knew and understood that there were midlevel managers who were receiving smaller bonuses."

Still, he said, should either bill become law in its current form, affected individuals could challenge it as a violation of the Constitution's "equal protection" clause — the requirement that government treat similarly situated parties similarly.

However, the impetus for a bonus-tax bill has slowed considerably in the past week or so.

Ciaran Clayton, a spokeswoman for Cantwell, said the Senate is unlikely to move on the issue until late this month, after a scheduled two-week recess.

And, Clayton said, Cantwell plans to use her position as a co-sponsor of the Senate measure and a member of the Senate Finance Committee to address the WaMu issue.

"She is going to be working to make sure that this [transitional] group at WaMu/JPMorgan doesn't fall into this crack or loophole," Clayton said.

In the end, Congress may ditch the idea of a retroactive bonus tax entirely, in favor of regulating future bonus practices at bailout recipients.

"This legislation isn't going anywhere quickly," Paravano said, "and if and when it does move, it likely will be a lot more carefully thought out."

Drew DeSilver: 206-464-3145 or

Copyright © 2009 The Seattle Times Company

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