WaMu bank unit bondholders oppose bankruptcy plan

Customers leave a bank branch at the Washington Mutual headquarters in downtown Seattle, Washington September 26, 2008.

NEW YORK (Reuters) - A group of senior bondholders of Washington Mutual Inc's WAMUQ.PK banking unit on Monday said they oppose a global settlement reached Friday with the Federal Deposit Insurance Corp over the thrift's September 2008 failure.

The proposed settlement calls for the return of $7 billion to creditors. It is also designed to resolve claims arising from the FDIC's role as receiver for Washington Mutual, and claims between the bankrupt holding company and JPMorgan Chase & Co (JPM.N), which bought the thrift's banking operations. The settlement requires court approval.

William Isaacson, a partner at the law firm Boies, Schiller & Flexner LLP representing the banking unit's senior bondholders, in a statement called the proposed settlement "an enormous loss" to the bankruptcy estate, creating a "windfall" for the holding company and JPMorgan through the awarding of billions of dollars of tax refunds.

He also said it was unfair that noteholders of the holding company would be paid in full, while senior noteholders at the bank unit level would "not receive anything close" to full payment.

"Our clients do not support this proposed settlement," he said. "They will seek to vindicate their rights and claims, including their claims in the Washington Mutual Inc bankruptcy proceedings, until a decision on the merits is reached."

Washington Mutual is the largest U.S. banking company to fail. Regulators seized it on September 25, 2008 after it suffered a run on deposits, amid tens of billions of dollars of exposure subprime mortgages, adjustable-rate mortgages and home equity loans.

The case is In re: Washington Mutual Inc, U.S. Bankruptcy Court, District of Delaware, No. 08-12229.

(Reporting by Jonathan Stempel, editing by Bernard Orr)