WaMu settles dispute, eyes bankruptcy exit

Tue Dec 13, 2011 9:52am EST

Customers leave a bank branch at the Washington Mutual headquarters in downtown Seattle, Washington September 26, 2008, a day after federal regulators seized the company and sold its branches, deposits and loans to JPMorgan Chase in the largest bank failure in U.S. history. REUTERS/Robert Sorbo

Customers leave a bank branch at the Washington Mutual headquarters in downtown Seattle, Washington September 26, 2008, a day after federal regulators seized the company and sold its branches, deposits and loans to JPMorgan Chase in the largest bank failure in U.S. history.

Credit: Reuters/Robert Sorbo

(Reuters) - Washington Mutual Inc, the biggest bank to fail in U.S. history, said it reached a settlement in a dispute between shareholders and certain creditors that had prevented the bank from emerging from Chapter 11 bankruptcy proceedings.

WaMu got a respite late on Monday when it said in a court filing that the shareholders represented by an equity committee would drop legal claims against settlement noteholders.

"The Equity Committee and its advisors are pleased with the result and look forward to and support the swift confirmation of the plan," said Michael Willingham, chairman of the Equity Committee appointed in the Chapter 11 proceedings.

Washington Mutual has languished in Chapter 11 bankruptcy since regulators seized its savings and loan in September 2008.

The plan to settle the dispute will allow WaMu to distribute $7 billion to creditors.

"The proposed settlement agreement represents a positive step toward completing the Chapter 11 process," WaMu said.

WaMu's reorganized assets will consist of its equity interests in WMI Investment Corp and WM Mortgage Reinsurance Co Inc. The reorganized company will be funded by a $75 million contribution from certain creditors. The reorganized entity will also receive a credit line of $125 million from the noteholders, according to the court filing.

WaMu said the majority of common equity in the reorganized company will be distributed to the company's current preferred and common equity holders.

In September, Judge Mary Walrath rejected WaMu's second attempt to end its bankruptcy as disputes raged between the shareholders and noteholders.

In her earlier opinion, Walrath had ordered mediation as a way to end lingering disputes between the warring parties.

Washington Mutual filed for bankruptcy in September 2008, at the height of the financial crisis, after regulators seized its savings and loan business.

The banking business was sold by the Federal Deposit Insurance Corp to JPMorgan Chase & Co for $1.88 billion.

Almost immediately after the bankruptcy started, Washington Mutual, the FDIC and JPMorgan began a legal battle to sort out who owned what of the failed bank.

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

(Reporting by Sakthi Prasad in Bangalore; Editing by Roshni Menon and Jane Merriman)

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Comments (4)
LordCavendish wrote:
And in a parallel universe, former WAMU CEO Kerry Killinger is in PRISON, not living in a gated community on a pile of six hundred million dollars.

Dec 13, 2011 3:11am EST  --  Report as abuse
Horhay wrote:
Kerry Killinger and his gang are NOT in prison. A judge has been tapped and they have a large payback and WILL NOT be charged , ever , with a crime. Hows that for the criminals running our justice system who protect their own. Just like Corzine/MF Global,bank fraud is now a U.S. norm.
Mary Shapiro was handpicked by the bankers as head of the SEC. Okay, get over it.

Dec 13, 2011 7:49am EST  --  Report as abuse
Horhay wrote:
Killinger will NEVER go to prison.

Dec 13, 2011 8:00am EST  --  Report as abuse
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