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WaMu Falls on JPMorgan Settlement on Cash, Tax Refund (Update3)
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By Steven Church
March 12 (Bloomberg) -- Washington Mutual Inc. will collect at least $5.95 billion, less than the $20 billion estimated by shareholders, in a proposed settlement of the bankrupt company’s yearlong battle with federal regulators and JPMorgan Chase & Co.
Shares of Washington Mutual, the former parent of the biggest U.S. bank to fail, fell 47 percent, closing at 20 cents in over-the-counter trading. The shares plunged as much as 76 percent after the accord was announced.
Under terms of the deal, Washington Mutual, known as WaMu, will get $4 billion in deposits currently held by JPMorgan. WaMu, JPMorgan and the Federal Deposit Insurance Corp. will also share two tax refunds expected to be worth about $5.6 billion, said Brian Rosen, a Washington Mutual attorney, in an interview today.
Rosen announced the agreement in U.S. Bankruptcy Court in Wilmington, Delaware, where all three entities had been fighting over the deposits. Shareholders had estimated in court papers that the company could collect $20 billion from the deposits, tax refunds and lawsuits.
The money is being held by JPMorgan, which bought Washington Mutual’s bank for $1.9 billion in September 2008 after it was shut by federal regulators. WaMu no longer has any banking operations and is liquidating its under the supervision of a bankruptcy court.
The deal, which took a year to negotiate, will become “vapor” if a group of bondholders successfully opposes it, Rosen said after the hearing.
Debt Repayment
Rosen said the money coming to Seattle-based WaMu will be used to repay $7 billion in debt, mostly owed to bondholders who support the settlement. That won’t leave enough for shareholders, who typically get nothing when a company they own files bankruptcy.
Another set of bondholders owed money by WaMu’s failed Washington Mutual Bank haven’t agreed to support the deal, Rosen said.
Without the support of the bank bondholders, the entire settlement could collapse, Rosen told U.S. Bankruptcy Judge Mary Walrath. The judge must approve the settlement, which Rosen said will be filed by March 26 with the court as part of the company’s liquidation plan.
The company also plans to settle three lawsuits that pitted it against the FDIC and New York-based JPMorgan. A separate shareholder lawsuit against JPMorgan and the FDIC isn’t included in the settlement, Rosen said.
Washington Mutual preferred shares fell 32 percent to close at $1.50, after earlier plummeting as much as 86 percent.
The bankruptcy case is In re Washington Mutual Inc., 08- 12229, U.S. Bankruptcy Court, District of Delaware (Wilmington). The dispute over the cash is Washington Mutual Inc. v. JPMorgan Chase Bank NA, 09-50934, U.S. Bankruptcy Court, District of Delaware (Wilmington).
To contact the reporter on this story: Steven Church in U.S. Bankruptcy Court in Wilmington, Delaware, at schurch3@bloomberg.net.
Last Updated: March 12, 2010 18:17 EST
