Washington Mutual, JPMorgan May Fight Over $5 Billion (Update2)
By Steven Church
Oct. 3 (Bloomberg) -- Washington Mutual Inc., the bankrupt holding company of the biggest U.S. bank to fail, and JPMorgan Chase & Co., the bank's new owner, agreed to delay any attempt to withdraw a disputed $5 billion in cash from the institution.
WaMu attorney Marcia Goldstein told U.S. Bankruptcy Judge Mary Walrath in Wilmington, Delaware, today that her client owns the money. Goldstein said that both parties would give two days notice before trying to access the funds, allowing time for them to formally ask Walrath to intervene in the dispute.
``There was a fair amount of chaos, frankly, Thursday evening,'' Goldstein said, referring to Sept. 25, the day before WaMu's bankruptcy filing. ``We are trying to work with JPMorgan to resolve any remaining confusion.''
The holding company sought court protection after its banking subsidiaries, including Washington Mutual Bank, were seized by U.S. government regulators and sold to New York-based JPMorgan for $1.9 billion. The $5 billion in cash is being held by Washington Mutual Bank, which isn't in bankruptcy. Banks are barred by federal law from seeking bankruptcy court protection.
One of the first actions by JPMorgan after taking over WaMu was to deny the Seattle-based bank holding company access to the computer systems of its subsidiary bank, Goldstein said.
Service Contract
JPMorgan attorney Hydee Feldstein told Walrath that her client is trying to work out a service contract that would allow WaMu's holding company access to the thrift's computer system. Feldstein didn't immediately return a call seeking comment on the 48 hour withdrawal notice agreement. Thomas Kelly, a JPMorgan spokesman, declined to comment.
Lawyers for WaMu bondholders and its former bank have said they may lay claim to the cash.
Bondholders of the bank may challenge WaMu's claim to the cash, said attorney Evan Flaschen of the Austin, Texas-based law firm Bracewell & Giuliani. Bracewell has been hired by bondholders who are owed money by Washington Mutual Bank.
The bondholders want to know why WaMu, if it controls the $5 billion, didn't use the funds to support its operations in the days before regulators took over, Flaschen said.
``There is going to be a battle royal over whether the bank is entitled to have access to that cash,'' said distressed-debt analyst Matthew Dundon of Miller Tabak Roberts Securities in New York.
Washington Mutual Inc.'s 5.25 percent bonds due in 2017 fell as low as 61.25 cents on the dollar, nearly 3 percent, before rebounding to 63 cents as of 12:08 p.m., according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
JPMorgan rose 18 cents to $50.03 at 1:06 p.m. in New York Stock Exchange composite trading.
The case is In Re Washington Mutual Inc., 08-12229, U.S. Bankruptcy Court for the 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.
