In December 2017, the DC Circuit Court ruled that the FDIC (Federal Deposit Insurance Corporation) cannot seize beneficiary ownership of trusts. The case was won by Deutsche Bank Trust Company. As a result, the FDIC was compelled to return $600 million of JPMorgan Chase’s down payment for Washington Mutual Bank (WMB). The income generated from all the Mortgage-Backed Securities (MBS) trusts, which amounted to an impressive $8 billion in profit in 2007, rightfully belonged to the beneficiaries of those trusts. This legal decision clarified the rights and protections of trust beneficiaries in the context of FDIC-insured banks
Indeed, the old shareholders of Washington Mutual (WAMU) stock are indeed considered the beneficiaries of those trusts. However, it’s essential to understand the nuances of the situation:
Trust Beneficiaries:
The income generated from the Mortgage-Backed Securities (MBS) trusts rightfully belongs to the beneficiaries of those trusts.
In this context, the old shareholders of WAMU stock are indeed beneficiaries because they indirectly hold an interest in the MBS trusts through their ownership of WAMU stock.
Chapter 11 Bankruptcy:
Chapter 11 bankruptcy is a reorganization process that allows a company to continue operating while restructuring its debts.
During Chapter 11 bankruptcy proceedings, the company (in this case, WAMU) aims to reorganize its financial affairs and emerge as a viable entity.
The bankruptcy court oversees the process, and creditors (including trust beneficiaries) have a say in the reorganization plan.
Distribution of Assets:
The distribution of assets during bankruptcy depends on the specific circumstances and the court’s decisions.
Generally, secured creditors (such as bondholders) receive priority in asset distribution.
Unsecured creditors (including trust beneficiaries) may receive payments based on the available assets after secured creditors are satisfied.
Shareholders (including old shareholders of WAMU stock) are typically last in line for distributions.
Timing of Payments:
The timing of payments to trust beneficiaries depends on the bankruptcy process.
It’s possible that some distributions may occur before the Chapter 11 bankruptcy is finalized, especially if there are available funds.
However, bankruptcy proceedings can be lengthy, and beneficiaries may need to be patient.
Legal Complexity:
Bankruptcy cases involve complex legal proceedings, negotiations, and court decisions.
The specifics of how trust beneficiaries will be compensated depend on the court’s rulings, the company’s financial situation, and the reorganization plan.
In summary, while trust beneficiaries (including old WAMU shareholders) have a rightful claim to income from the MBS trusts, the bankruptcy process introduces legal complexities. It’s advisable to consult legal experts or monitor official bankruptcy updates for accurate information regarding distributions and payments during the Chapter 11 proceedings .
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