* Former WaMu ally Aurelius opposes latest plan
* Aurelius: JPMorgan needs to provide more to settlement
By Tom Hals
WILMINGTON, Del., June 22 A hedge fund that
helped craft a settlement at the heart of Washington Mutual
Inc's WAMUQ.PK reorganization plan now opposes the deal,
saying it unfairly enriches JPMorgan Chase & Co (JPM.N), which
bought the thrift's banking operations.
In a court filing on Wednesday, Aurelius Capital Management
LP said the delay in implementing the deal has drained money
from creditors, and that JPMorgan should contribute more to the
Aurelius and three other hedge funds helped strike a
"global settlement" last year that ended legal battles between
Washington Mutual, JPMorgan and the Federal Deposit Insurance
In return for ending lawsuits, the parties agreed to divide
about $10 billion of disputed assets. Washington Mutual ended
up with about $7 billion, which it plans to distribute to
creditors once it gets court approval to do so.
One of the disputed assets was $4 billion that Washington
Mutual had on deposit at its former bank. That bank was seized
and sold by the FDIC to JPMorgan in the biggest bank failure in
U.S. history in September 2008. The next day Washington Mutual
filed for bankruptcy.
JPMorgan is paying an annual 0.2 percent interest to
Washington Mutual on that $4 billion deposit. Aurelius argued
in court papers that JPMorgan could have earned more than $400
million on those deposits since the start of the bankruptcy,
while paying a total of only $20 million in interest.
Aurelius said it supported the global settlement when it
expected the company's reorganization to become effective a
year ago. But a series of setbacks mean the company is still in
bankruptcy, and JPMorgan continues to benefit from the
"At this time, the Amended Global Settlement Agreement
should not be approved as fair unless (JPMorgan) provides
additional value to the debtors to compensate for the
substantial delays," Aurelius said in a filing with Delaware's
"Washington Mutual is a little bit surprised by the filing,
specifically with Aurelius's position with respect to the
global settlement agreement, especially in light of the court's
approval of the global settlement agreement," said Washington
Mutual attorney Brian Rosen of the Weil, Gotshal & Manges LLP
He added that Judge Mary Walrath has said she will not
relitigate the settlement agreement. She described the
settlement as fair in a Jan. 7 opinion in which she rejected
the company's previous reorganization plan and requested
modifications, such as changes to legal releases.
JPMorgan declined to comment.
Walrath will hold hearings in July on whether to approve
Washington Mutual's plan of reorganization.
The case is In re Washington Mutual, U.S. Bankruptcy Court,
District of Delaware, No. 08-12229.
(Reporting by Tom Hals, editing by Matthew Lewis)