PREVIEW-WaMu's creditors brace for examiner report

* Shareholders pinning hopes on report

* Case differs from Tribune

By Tom Hals

WILMINGTON, Del., Oct 29 (Reuters) - Washington Mutual Inc's WAMUQ.PK creditors and shareholders are bracing for a report from an examiner next week that could upend the company's plans for repaying its debts two years after its bank failed.

Thousands of disgruntled shareholders are hoping the examiner's report uncovers several billion dollars, which would create value for their otherwise nearly worthless shares.

"There is definitely going to be good news from the examiner's report," said Doug Meehan, a shareholder from Moorestown, New Jersey.

Shareholders have been waiting for what they think is a proper accounting of the events leading up to Sept. 25, 2008, when the company's bank was seized by government regulators without warning following a $16 billion run on deposits.

The holding company filed for bankruptcy the next day.

The bank, with 2,239 branches and $188 billion in deposits, was by far the largest to fail in U.S. history. Shareholders have long believed regulators jumped the gun when they took over Washington Mutual Bank, or WaMu, and immediately sold it to JPMorgan Chase & Co (JPM.N) for a "firesale" price of $1.9 billion.

The company's shares were trading around $1.70 a day before the bank seizure, and now trade for about a tenth of that.

In order for shareholders to get something, the examiner's report would have to spark something almost impossibly dramatic, such as unwinding the sale to JPMorgan, said Kevin Starke, an analyst with CRT Capital Group in Stamford, Connecticut.

"It would have to turn up a smoking gun," said Starke. "If such a document existed, one or more of the parties would have found it and used it by now."

Bankruptcy courts rarely appoint examiners, but they have a history of turning up fraud and financial improprieties, as in the cases of Enron Corp and Lehman Brothers Holdings Inc.

A REPEAT OF TRIBUNE?

Washington Mutual's report follows a July examination of Tribune Co, a newspaper publisher. That investigation blew up a settlement among senior creditors and gave hope to bondholders who had expected to get nothing.

The Washington Mutual examiner, Joshua Hochberg, was appointed to dig through mountains of documents and weigh the fairness of a settlement of disputed assets that will pave the way for the company to exit bankruptcy.

That settlement divides billions of dollars of cash, tax refunds and investments among Washington Mutual, the Federal Deposit Insurance Corp, which sold the bank, and JPMorgan.

The plan pays out more than $7 billion and most creditors have signed on.

Shareholders have argued the company could be worth $30 billion if all legal claims were assessed, such as those that have been made in various courts alleging JPMorgan had a role in the bank's failure.

JPMorgan and Washington Mutual declined to comment. The FDIC did not immediately return a call for comment.

Washington Mutual shareholders might be heartened by the recent examiner report into Tribune, but there are differences between the two.

"I know Tribune, and this is not Tribune," said bankruptcy attorney Tom Lauria at a recent Washington Mutual court hearing. The White & Case attorney represents Washington Mutual's bondholders and lenders to Tribune.

He noted that the problem with Tribune's plan to repay creditors was that it never had the broad support of Washington Mutual's plan. The examiner's "had the ultimate effect of calcifying opposition," he said.

The Tribune examiner's report questioned the rights of senior lenders to be paid in full on their claims, opening the way for more junior bondholders. Hochberg is not going to question claims against Washington Mutual, but rather try to uncover new claims owned by Washington Mutual against others.

If shareholders believe the bank was improperly seized, that raises the problem of suing the government.

"Being up against the government in this kind of environment is really really tough," said Jonathan Lipson, a professor at the University of Wisconsin Law School in Madison, Wisconsin. "In the end, what will you do? Sue the FDIC? That's why people are pessimistic.

"That's the risk of buying stock in a bank holding company."

The case is In re Washington Mutual Inc, U.S. Bankruptcy Court, District of Delaware (Wilmington), No. 08-12229. (Editing by Gary Hill)