The saga of the failure of the largest bank in U.S. history, Washington Mutual, continues on, as the latest focus is on who owns $7 billion; JP Morgan Chase (NYSE:JPM) or Washington Mutual Inc., the holding company of WaMu.
Both companies claim the $7 billion is theirs, and a federal bankruptcy judge will make decision some time soon who owns it. JP Morgan of course acquired Washington Mutual from the FDIC and Washington Mutual Inc.
While it seems hard to understand how who owns $7 billion could be an issue, it centers around how each party views the cash. JP Morgan looks at it as something contributed to operations of Washington Mutual from the holding company, while Washington Mutual looks at it as deposits made from the parent company, and should be used to pay back its creditors. This in reference to $4 billion in trust-preferred securities, while the other $3 billion being fought over is concerning federal tax refunds.
Bondholders have made claims there was misconduct in the deal, and the judge presiding over the case has allowed the pursuit of those claims to go forward.
Concerning the secret auction arranged by the FDIC, JP Morgan got the deal of the century, as their top bid of $1.9 billion brought them $118 billion in deposits and another 2,239 branches into their fold.
According to FDIC spokesman Andrew Gray, talking about bailing out the bondholders, he stated: “To bail out unsecured creditors and shareholders would have exposed the [deposit-insurance fund] to losses and would have violated the statutory mandate to resolve insured institutions in the least costly way.”
Creditors of Washington Mutual are also the focus of a civil lawsuit, which claims the bank should have been liquidated rather than allowed to be bought at such an outrageously low price. Washington Mutual claims creditors would have benefited from that far more than the very low price they were sold for.
