WaMu, FDIC May End Court Fight Over Tax Refund, Cash This Week, Judge Told

Washington Mutual Inc. and the Federal Deposit Insurance Corp. may end their dispute over the biggest U.S. bank failure by May 21, lawyers for both groups told a bankruptcy judge.

A settlement agreement “should be completed by the end of this week,” FDIC attorney Thomas Califano said in an interview after the hearing. Califano earlier told U.S. Bankruptcy Judge Mary F. Walrath in Wilmington, Delaware, that the agency would have enough time to review and approve the proposed settlement.

Under the terms of the agreement, the FDIC would get as much as $850 million from tax refunds worth as much as $5.8 billion, according to court documents. WaMu and the FDIC would also end their court battles over the September 2008 takeover of WaMu’s bank by federal regulators.

WaMu filed for bankruptcy the day after the takeover. Before it failed, Washington Mutual Bank had more than 2,200 branches and $188 billion in deposits.

The bank, its bondholders and the official committee of unsecured creditors support the proposed settlement that would split the tax refunds and other assets with JPMorgan Chase & Co. and the FDIC, both of which claimed WaMu owed them money.

WaMu, its bondholders and other creditors have considered using lawsuits to recover money to pay about $7 billion in debt, mostly to bondholders.

Shareholders would get nothing under a proposed liquidation of most of the company’s remaining assets, which include $4 billion in cash in addition to the tax refunds.

Accord Announcement

In March, attorneys for JPMorgan and WaMu announced settlement of their differences over the tax refunds and the $4 billion, which JPMorgan has held since it bought WaMu’s bank in 2008 following its seizure by regulators.

JPMorgan had claimed those tax refunds as the owner of the bank. Under the settlement, JPMorgan will get as much as $2.4 billion of the refunds and WaMu as much as $2.6 billion. The rest would go to the FDIC.

Until today, the FDIC had not said whether its governing board would approve the settlement. Califano said he expects FDIC approval by the end of the week.

Once the deal is signed, shareholders will be the only major opponents left to WaMu’s reorganization plan.

Shareholders have said in court papers that WaMu could collect as much as $20 billion from lawsuits, tax refunds and the deposits held by JPMorgan.

Creditor Vote

In June, WaMu will seek permission to send its reorganization proposal to creditors for a vote, the first step toward winning final approval from Walrath this summer.

The company’s 4 percent bonds that were due in January, rose about 1 percent today to 102.6 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The bankruptcy case is In re Washington Mutual Inc., 08- 12229, and a related financial dispute is Washington Mutual Inc. v. JPMorgan Chase Bank NA, 09-50934, U.S. Bankruptcy Court, District of Delaware (Wilmington).

To contact the reporter on this story: Steven Church in U.S. Bankruptcy Court in Wilmington, Delaware, at schurch3@bloomberg.net.