WaMu amends bankruptcy plan

By Tom Hals

WILMINGTON, Delaware (BestGrowthStock) – Washington Mutual Inc proposed an amended plan of reorganization on Monday that would return $7 billion to creditors, but it was unclear if the Federal Deposit Insurance Corp would support the plan.

The bank holding company has been seeking a way out of 18 months of legal fights stemming from the biggest bank failure in U.S. history so that it can begin repaying creditors.

The company, which once owned the largest U.S. savings and loan, has proposed a plan of reorganization around an agreement with the Federal Deposit Insurance Corp and JPMorgan Chase & Co over how to split a pool of assets.

Court documents filed on Monday dropped language saying the FDIC did not agree to the plan, suggesting an agreement had been reached.

However, the FDIC responded to requests for comment by referring to an objection it filed last week, which said that “there is currently no definitive global settlement.”

Sources close to the talks said the FDIC was continuing to negotiate and could drop that objection. But they also said the agency’s board had not approved the revised agreement.

Washington Mutual filed for bankruptcy in 2008 after regulators seized its lending operations, Washington Mutual Bank, which was sold by the FDIC to JPMorgan Chase & Co for about $1.9 billion.

The three parties have been fighting over deposits that Washington Mutual had at its seized bank and over billions of dollars in tax refunds.

Monday’s disclosure statement must be approved by a bankruptcy court judge so that it can be sent along with the plan of reorganization for a vote by creditors. A hearing on the statement will be held on Wednesday in Delaware’s bankruptcy court.

Washington Mutual first announced a settlement in March. That deal was not approved by the board of the FDIC, which led to further talks.

The revised agreement changed some of the ways assets were being divided among the parties. Washington Mutual still expects to distribute $7 billion to creditors, but it expects $2.6 billion to come from tax refunds, up from about $2 billion previously.

It still expects the return of $4 billion in disputed deposits held by the bank purchased by JPMorgan.

JPMorgan will also receive a larger portion of the tax refunds, up to $2.4 billion from a previous estimate of $2.1 billion, according to court documents. The FDIC would receive as little as $800 million, down from $1.67 billion under a previous plan.

Washington Mutual also appeared to reach out to holders of bonds issued by Washington Mutual Bank by setting aside up to $150 million if the court allowed their claims.

The company had said in the past that such claims must be brought against the FDIC, and if claims were allowed against Washington Mutual Inc the reorganization plan would be voided.

An attorney for Washington Mutual Bank bondholders declined to comment.

Shares in Washington Mutual were down 13 percent at 12.5 cents in pink sheet trading.

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

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(Reporting by Tom Hals; editing by John Wallace)

WaMu amends bankruptcy plan