WaMu talks with shareholders collapse: source

WILMINGTON, Delaware Wed Jun 15, 2011 6:38pm EDT

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WILMINGTON, Delaware (Reuters) - Settlement talks with Washington Mutual Inc WAMUQ.PK shareholders to end their objections to the company's proposed reorganization have collapsed, sources told Reuters on Wednesday.

Washington Mutual has been negotiating with creditors and shareholders to end its bankruptcy and get wide agreement on a plan to distribute about $7 billion.

The shareholders were the last large group opposing the plan and the company's attorney recently said an outline agreement had been reached that would have given shareholders a stake in the post-bankruptcy company.

However, those talks failed as common shareholders feared any value was going to end up with preferred shareholders, according to one person with knowledge of the talks, who declined to be identified.

The collapse of the talks was first reported by Bloomberg News.

A Washington Mutual spokesman and a lawyer for the official committee of equity holders both declined to comment.

The company's attorney said last week in a bankruptcy court hearing that, if talks with shareholders fail to produce a deal, the company will move ahead with its "Sixth Amended Plan," which has already been put to a vote of creditors.

A hearing is tentatively scheduled for July 5 where Washington Mutual will ask a judge to approve that plan.

Shareholders are now likely to attack that plan. They filed notices with Delaware's Bankruptcy Court on Wednesday they intend to take depositions from hedge funds that have been accused of alleged insider trading.

Those funds helped put together the Sixth Amended Plan and shareholders might try to prove insider trading claims, which might be the best bet for getting any money from the reorganization.

Washington Mutual filed for bankruptcy in September 2008, a day after regulators seized its bank in the biggest bank failure in U.S. history. The bank was immediately sold to JPMorgan Chase & Co (JPM.N) for $1.9 billion.

(Reporting by Tom Hals; editing by Andre Grenon)

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