Washington Mutual To Distribute $7 Billion In Chapter 11 Plan
By Peg Brickley, Of DOW JONES NEWSWIRES
Washington Mutual Inc. (WAMUQ) Friday filed a Chapter 11 plan sketching out how it plans to distribute more than $7 billion accumulated in the wake of the largest banking failure in U.S. history, that of its former subsidiary Washington Mutual Bank, or WaMu.
Documents filed in the U.S. Bankruptcy Court in Wilmington, Del. say the money must stretch across at least $8 billion worth of debts left behind when regulators seized Washington Mutual's prized thrift, WaMu, and sold it to J.P. Morgan Chase & Co. (JPM).
It's possible, but not certain, that creditors on the bottom ranks, such as holders of preferred equity shares, will see a return from the bankruptcy, court documents say. Common shareholders, however, will get nothing out of the case, Washington Mutual said.
Creditors and shareholders at the time were outraged at the regulatory takeover and sale to J.P. Morgan Chase for $1.9 billion. They slammed the deal as an unwarranted bargain for J.P. Morgan, which had tried to buy WaMu outright, and a fumble by regulators.
Even before Washington Mutual's Chapter 11 plan was filed, the distribution scheme faced opposition from shareholders who stood to be shut out, and from creditors of WaMu.
The filing of the plan followed the announcement of a broad-ranging proposed settlement among WaMu's former parent, J.P. Morgan Chase and regulators. Settlement terms were a disappointment to shareholders of the parent company and creditors of WaMu, which has $13 billion of debt of its own, separate from the parent's company debt.
If approved by the bankruptcy court, the settlement will end a series of legal actions spawned by the WaMu seizure, and divide up billions of dollars among the thrift's former owner, its new owner, and the regulators who brokered the deal.
Shareholders say the company traded away $20 billion worth of legal claims too cheaply in the settlement.
In a press release, Washington Mutual said J.P. Morgan, WaMu's new owner, has signed on to the settlement, but the Federal Deposit Insurance Corp. has not.
The company said it is "hopeful" the FDIC will agree to support the settlement "in the near future."
The FDIC is serving as receiver for WaMu's creditors, and it has been hit with lawsuits over the deal.
The proposed settlement calls for J.P. Morgan to hand over to Washington Mutual some $4 billion cash that was in the parent company's accounts at WaMu when the thrift was seized, in September 2008.
WaMu's new and former owners and regulators will share tax refunds that could be as much as $5.8 billion, plan documents say. Parent company Washington Mutual's split of the tax refunds will be from $1.8 billion to $2 billion, the plan says.
-By Peg Brickley, Dow Jones Newswires; 215/462-0953; peg.brickley@dowjones.com
(END) Dow Jones Newswires
03-26-102348ET
Copyright (c) 2010 Dow Jones & Company, Inc.
The Wall Street Journal
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