Mr Cooper Group Inc (COOP)

[dm57]

November 2, 2010

By DAN FITZPATRICK

The government's sale of Washington Mutual Inc.'s banking assets to J.P. Morgan Chase & Co. began with a phone call.

Six days before the Federal Deposit Insurance Corporation opened the formal bidding for WaMu's banking operations in 2008, FDIC Chairman Sheila Bair asked J.P. Morgan Chief Executive James Dimon if he would be interested in buying the bank assets out of receivership.

The Sept. 16, 2008, call between Ms. Bair and Mr. Dimon was among the new revelations in a 369-page report submitted by a court-appointed examiner in Washington Mutual's bankruptcy case.

The collapse of WaMu was the largest bank failure in U.S. history. Shareholders and bondholders, both of whom had their holdings virtually wiped out, said after the seizure that WaMu shouldn't have been taken down. They were eagerly awaiting the examiner's report with hopes that it would back up their claims for a bigger share of WaMu's assets.

But the examiner, Joshua Hochberg, provided little ammunition, saying there are "no known facts to establish the government acted in bad faith."

The examiner said he found no evidence that FDIC and J.P. Morgan acted improperly when regulators seized the Seattle thrift and sold its banking assets to J.P. Morgan for $1.88 billion and gave the New York bank $188 billion in deposits and a coast-to-coast presence for the first time.

Mr. Hochberg also concluded that a proposed billion-dollar settlement between Washington Mutual's parent company, J.P. Morgan, and the FDIC is reasonable after more than two years of fighting among the various parties.

The report paves the way for an eventual approval of the plan by a U.S. Bankruptcy Court judge. A confirmation hearing is scheduled for Dec. 1.

But the examiner did have some less-than-positive comments for the actions of the FDIC. Its bidding process, he wrote, was "less than optimal" and "could have been better." For example, the Sept. 16 call from Ms. Bair to Mr. Dimon came "before any formal opening of the bidding process" on Sept. 22, 2008.

Mr. Dimon told the examiner that he said on the call that J.P. Morgan "might be willing" to buy WaMu out of receivership.

The bank, he told the examiner, decided Sept. 19, 2008, that it couldn't purchase WaMu whole but would consider a purchase out of receivership. He thought he might bid "zero" but landed on $1.88 billion because he thought others would be in the $1 billion-$1.5 billion range.

The examiner also noted that J.P. Morgan and FDIC "negotiated and changed various provisions" of their agreement between Sept. 22 and Sept. 26 even though the FDIC told all bidders that the agreement "was not negotiable." After J.P. Morgan was declared the winner, according to the examiner, there is evidence that J.P. Morgan asked FDIC for a clause protecting it from $500 million in potential legal claims and FDIC granted the request.

The facts don't suggest an "unfair process," the examiner said "or that a different process would have changed the outcome." FDIC's bidding procedures, he said, "have to be viewed in the context of the uncertainty and panic that gripped the financial system in Sept. 2008.

An FDIC spokesman said the report confirms "there has been no undue influence on any party."

http://online.wsj.com/article/SB10001424...

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