Market Overview

New Deal Will Allow Washington Mutual, Inc. To Resolve Bankruptcy (JPM)


Washington Mutual, Inc. (OTC: WAMUQ) said on Friday that it has reached a deal, which will bring it close to the $6 billion in needs to resolve its bankruptcy. However, the deal could leave shareholders in a lurch.

According to the deal, Washington Mutual, tied to the biggest bank failure in U.S. history, will gain ownership of a bank deposit worth $4 billion. The deposit had also been claimed by JP Morgan Chase & Co. (NYSE: JPM). The bank has also reached an agreement to split two potential tax refunds worth $5.6 billion with JP Morgan and the Federal Deposit Insurance Corp. (FDIC). The three parties have reached an agreement after an 18 month legal battle.

However, the new deal will depend upon the disallowance of billions of dollars in claims made by Washington Mutual bondholders. The bank recognizes $7 billion in unsecured claims. The deal will also face resistance from the bank’s shareholders.

Seattle based Washington Mutual was hit badly during the financial crisis. The bank filed for bankruptcy in September 2008. Worried depositors took out nearly 10% of the bank’s $188 billion in deposits in a matter of few days, which prompted regulators to seize its operations. The bank was sold by FDIC to JP Morgan for $1.9 billion.

The seizure and bankruptcy of Washington Mutual, which was founded in 1889 to help finance the rebuilding of central Seattle after a devastating fire, has been marred by controversy, with shareholders even saying that there was a conspiracy in the failure of the bank.

Posted-In: News Markets


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