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DJ JP Morgan, Washington Mutual, FDIC Reach A Settlement

12 Mar 12:27



(MORE TO FOLLOW) Dow Jones Newswires
03-12-10 1227ET
Copyright (c) 2010 Dow Jones & Company, Inc.

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=DJ J.P. Morgan, Washington Mutual, FDIC Reach Settlement

12 Mar 13:44


By Peg Brickley
Of DOW JONES DAILY BANKRUPTCY REVIEW

WILMINGTON, Del. (Dow Jones)--Washington Mutual Inc. (WAMUQ), J.P. Morgan
Chase & Co. (JPM) and federal regulators announced Friday that they have
settled disputes arising out of the largest banking collapse in U.S. history,
that of Washington Mutual Bank, or WaMu.

Brian Rosen, attorney for WaMu's former parent, announced the deal at a
hearing in the U.S. Bankruptcy Court in Wilmington, Del. He's with Weil Gotshal
& Manges.

As part of the pact, J.P. Morgan agreed to relinquish some $4 billion that
was in Washington Mutual's bank accounts when WaMu was seized and sold.

In return, J.P. Morgan, which bought WaMu, gets a share of tax refunds, other
assets worth billions, and a shield from allegations of impropriety that have
dogged it over the 2008 purchase of the ailing thrift.

As WaMu's buyer, J.P. Morgan has been clinging to the bank account cash while
battling allegations it engineered WaMu's collapse in order to take it over at
a bargain price.

The deal announced Friday takes J.P. Morgan largely off the hook in a series
of lawsuits, as Washington Mutual, J.P. Morgan and regulators agreed to drop
legal actions they have filed against each other. The settlement also allows
J.P. Morgan to collect a share of tax refunds due once the thrift's losses are
counted against previous years of profits.

Rosen said J.P. Morgan will get 70% of what is expected to be an initial $3
billion tax refund. Washington Mutual Inc., WaMu's former parent, will get the
remaining 30%.

A second tax refund, which could be as much as $2.6 billion, will be divided
between parent company Washington Mutual and the Federal Deposit Insurance
Corp. The FDIC will get 59.6% of the second tax refund and Washington Mutual
will get the rest.

The FDIC is in charge of finding money for WaMu's creditors in a receivership
proceeding that is separate from the parent company's bankruptcy case.

Rosen said the deal will be incorporated in a Chapter 11 plan for Washington
Mutual, which is wrapping up its affairs after losing its prized operating
business, WaMu.

If bondholders who backed WaMu don't go along with the deal, and continue to
press their claims for payment in the parent company bankruptcy, the settlement
is off, Rosen said.

Two groups of WaMu bondholders have filed claims in the parent company's
bankruptcy case, as has the FDIC, acting as receiver for WaMu's creditors. They
say WaMu paid years of dividends to Washington Mutual, only to be abandoned by
the parent company at the height of anxiety about the steadiness of the U.S.

financial system.

In addition to a share of one of Washington Mutual's tax refunds, the
settlement gives J.P. Morgan two other hotly contested assets: pension plan
assets with an estimated value of $2 billion and trust preferred securities.

Other elements of the settlement give Washington Mutual's intellectual
property to J.P. Morgan, while Washington Mutual agreed to sell its Visa stake
(V) to J.P. Morgan for $50 million.

WaMu's former parent will get another $55 million cash from a lawsuit
settlement that is in the custody of the Delaware bankruptcy court.

Shareholders of Washington Mutual have been hoping for a recovery out of the
bankruptcy case. The company has said there's no chance for common
shareholders, because it must cover debts of at least $8 billion before
shareholders get anything.

While other investors have been hoping for fast payment through a settlement,
rather than years of uncertainty due to court fights, many shareholders have
feared a settlement would be struck at a level that puts them out of the money.

WaMu's stack of bond debt is even higher than that of its former parent, with
$6.1 billion in senior notes and $7.6 billion in subordinated notes.


(Dow Jones Daily Bankruptcy Review covers news about distressed companies and
those under bankruptcy protection.)

-By Peg Brickley, Dow Jones Daily Bankruptcy Review; 302-521-2266;
[e-mail]

Click here to go to Dow Jones NewsPlus, a web front page of today's most
important business and market news, analysis and commentary:
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(END) Dow Jones Newswires
03-12-10 1344ET
Copyright (c) 2010 Dow Jones & Company, Inc.


















†Quote data delayed per exchange agreement.



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