By Peg Brickley
Of DOW JONES NEWSWIRES
Some three dozen institutional investors have joined in the fight over
billions of dollars in cash, potential tax refunds and other leavings of the
biggest bank collapse in U.S. history, that of Washington Mutual Bank, or WaMu.
Coalesced into an informal group of WaMu bondholders, the insurance
companies, investment banks and hedge funds signed papers Friday setting out
their claim for payments from WaMu's former parent company, Washington Mutual
Inc. (WAMUQ), which is liquidating under the protection of the U.S. Bankruptcy
Court in Wilmington, Del.
WaMu and Washington Mutual Inc. each have creditors clamoring for payment,
including bondholders owed billions of dollars. The two creditor camps are
grappling with each other and with WaMu's acquirer, JPMorgan Chase & Co. (JPM),
over assets that went up for grabs when the thrift was taken over by regulators
in September 2008.
(This article also appears in Daily Bankruptcy Review, a publication from Dow
Jones & Co.)
One of the biggest assets - already claimed by the former parent company and
by JPMorgan - is the tax refund expected due to the losses tracked to WaMu, a
lender in the subprime mortgage market. Counted back against prior years of
taxes paid, the 2008 losses could mean more than $2 billion in federal tax
checks for creditors of WaMu, creditors of the former parent company or both.
WaMu's bondholders say they're entitled to a share of the tax refund and to
some of the $4.4 billion the Seattle banking company stored up in WaMu
accounts. Nobody can locate signature cards or deposit agreements governing the
cash in the bank accounts, according to WaMu's bondholders. Therefore they
could have as much right as anyone else to the money in the former parent
company's accounts, according to the bondholder claim documents.
"The only fact which can be established is that (WaMu's former parent) had
access to very substantial capital that it should have injected into (WaMu),
but did not," lawyers for the informal group of WaMu bondholders wrote.
The Federal Deposit Insurance Corp. is serving as receiver for WaMu and is
charged with attempting to cover the bondholder losses. From the start,
however, WaMu's bondholders hired their own lawyers to press their claims,
independent of the federal agency's actions.
Lawsuits, some old and some yet to be filed, are also in the crosshairs of
WaMu's bondholders, the claim document says.
They signaled they'll press the former parent company to pay them damages for
alleged "failure to properly support its thrift subsidiary," which was deemed
unsafe by regulators after a run on the bank by depositors who withdrew
billions of dollars.
Additionally, WaMu bondholders said they're entitled to a share of more than
$400 million from lawsuits against the government that date back to the
acquisition of American Savings Bank in 1996.
WaMu's bondholders also staked claims in potential lawsuits against the
former parent company for alleged wrongs connected to the thrift's collapse and
seizure, ranging from running afoul of banking regulations to misrepresenting
its ability to prop up WaMu.
It could take years for the Chapter 11 claims-sifting process to conclude in
the former parent company's bankruptcy case, which is one of several arenas
dealing with the competing claims to WaMu's leftovers.
Separately, a group of WaMu bondholders sued JPMorgan in Texas state court,
accusing the thrift's acquirer of engineering the conditions that led to the
"Motivated by greed and unrestrained by moral or legal boundaries, (JPMorgan)
exploited a perceived liquidity crisis in the banking industry to improperly
take advantage of the financial difficulties of Washington Mutual," said a
February complaint filed in state court in Galveston, Texas.
JPMorgan has denied any wrongdoing in the Texas case, which accuses it of
interfering with the contract between WaMu and its bondholders.
With an assist from the Federal Deposit Insurance Corp., JPMorgan has moved
to push the case into federal court. Forcing it to stand trial in Texas "will
offend traditional notions of fair play and substantial justice," JPMorgan
WaMu's informal bondholders group includes affiliates of Aegon USA Investment
Management LLC, Transamerica Financial Life Insurance Co., Barclays Plc (BCS),
Cedar Hill Capital Partners LLC, Cerberus Partners LP and the Royal Bank of
Scotland Group (RBS), among others.
-By Peg Brickley, Dow Jones Newswires; 302-521-2266;
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