NEWS on Etrade Pro:
By Patrick Fitzgerald
Of DOW JONES DAILY BANKRUPTCY REVIEW
A federal judge says the Federal Deposit Insurance Corp. can't dodge a $10
billion lawsuit over the toxic remnants of Washington Mutual Bank.
Judge Rosemary M. Collyer of the U.S. District Court in Washington, D.C.,
refused the FDIC's bid to dismiss a lawsuit filed by a unit of Deutsche Bank AB
(DB, DBK.XE) over soured pools of mortgage loans made by Washington Mutual, or
WaMu, a big player in the home mortgage boom before it was seized by regulators
in the largest bank failure in U.S. history.
Deutsche Bank, as trustee for securitized pools of more than a half-million
home loans, in 2009 sued both the FDIC and J.P. Morgan Chase & Co. (JPM), which
bought WaMu after it was seized by regulators in 2008.
The trusts at issue in the lawsuit were the focus of an investigation by a
Senate subcommittee, which revealed that WaMu's own internal reviews found that
"loans marked as containing fraudulent information had nevertheless been
securitized and sold to investors."
According to the Deutsche Bank suit, either the FDIC or J.P. Morgan should be
held to account for losses in the parcels of WaMu's allegedly fraudulent or
poorly underwritten home loans.
The judge said last week it would be "improvident and premature" to dismiss
the suit against the FDIC until a decision is reached over whether the alleged
WaMu liabilities stayed with the FDIC or were transferred to J.P. Morgan.
J.P. Morgan bought WaMu but says it left behind the liabilities at issue in
the Deutsche Bank lawsuit. Collyer had already rejected the bank's bid to
dismiss the suit in May.
According to the FDIC, J.P. Morgan took on the liabilities attached to the
mortgage loan securitization trusts when it bought WaMu.
An FDIC spokesman wasn't immediately available for comment. A spokeswoman for
J.P. Morgan wasn't immediately available.
The lawsuit is part of a broader battle over what exactly J.P. Morgan bought
when it picked up WaMu for $1.8 billion as markets seized up and the worldwide
financial system teetered on the brink in the fall of 2008.
Much of that fighting took place in bankruptcy court, where WaMu's former
parent, Washington Mutual Inc. (WAMUQ), took refuge after being stripped of the
thrift. WaMu's former parent struck a deal with J.P. Morgan and with the FDIC
over how to split up billions of dollars in cash and tax refunds, assets that
were claimed by all three.
Embodied in a Chapter 11 plan, the Washington Mutual settlement has yet to
receive court approval. If it is ultimately approved, most creditors of WaMu's
former parent will receive payment in full with interest, and some of the
fighting over who was to blame for WaMu's failure will end.
Final arguments over Washington Mutual Inc.'s $7 billion Chapter 11 plan
start Wednesday in Wilmington, Del. Bankruptcy Judge Mary Walrath, who rejected
an earlier version of Washington Mutual's Chapter 11 plan earlier this year, is
overseeing the case and will make the final decision on the revised plan.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies
and those under bankruptcy protection.)
-By Patrick Fitzgerald, Dow Jones Daily Bankruptcy Review; 202-862-3544;
patrick.fitzgerald@dowjones.com
-Peg Brickley contributed to this article.
(END) Dow Jones Newswires
08-23-11 1303ET
Copyright (c) 2011 Dow Jones & Company, Inc.
13:03 082311
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