http://www.reuters.com/article/businessNews/idUSTRE4928KF20081003?
WaMu bankruptcy hearing opens with a $5 billion question
Fri Oct 3, 2008 5:26pm EDT
By Emily Chasan
WILMINGTON, Delaware (Reuters) - The fate of a $5 billion deposit dominated the first day of Washington Mutual Inc's WAMUQ.PK bankruptcy proceedings in a Delaware court on Friday.
The 119-year-old bank was closed by the U.S. government last week in the largest bank failure by far in the United States. Its banking assets were sold the same day to JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz)for $1.9 billion.
Washington Mutual's holding company said in a U.S. Securities and Exchange Commission filing this week that it had about $5 billion on deposit with Washington Mutual Bank prior to its takeover by U.S. banking regulators and JPMorgan.
"It is our understanding that those deposits were taken as part of the transaction with JPMorgan," Marcia Goldstein, a bankruptcy lawyer for Washington Mutual, told Judge Mary Walrath at the court hearing.
As JPMorgan has taken over most of the bank's operations, Goldstein said the holding company has only one senior-level employee left on staff, and no access to computers with records that would help it determine who its creditors are.
The money could potentially be used to pay creditors of the holding company, whose lawyers were concerned about the status of the deposits.
"It sounds very unusual for the holder of a $5 billion account not to be able to make withdrawals from that account," Thomas Lauria, a lawyer representing a group of note holders in the case, told the court.
Goldstein said WaMu and JPMorgan have reached a "standstill agreement" that would require both parties to give each other 48 hours notice if WaMu seeks to withdraw the money or either party decides to take any court action related to the deposit. The agreement is in effect until October 15.
Washington Mutual filed for bankruptcy protection last week, listing $32.9 billion in assets and $8 billion in debt. Several corporate entities, including certain real estate assets, an exchange entity and some insurance business, remain part of the holding company, but lawyers had little information about what was ahead.
"This is not the same business it was," Goldstein said.
Washington Mutual had been one of the lenders hardest hit by the U.S. housing bust and credit crisis, and had suffered from soaring mortgage losses. In the nine-day span leading up to its failure, $16.7 billion in deposits flowed out of the bank, forcing regulators to act.
The rapid downfall of the Seattle-based company, which was once the largest thrift in the United States, has left creditors just as confused.
"We have precious little in the way of facts," said Lauria, who represents a group of 16 bondholders holding about $800 million of senior notes. "We are very concerned about the status of our debt holders and ... how fast things seem to be moving."
Goldstein said WaMu was not seeking outside bankruptcy financing at the time, as it currently has "adequate cash" to fund the costs of the bankruptcy process.
Some WaMu employees not offered jobs by JPMorgan were also expected to return to help the holding company unwind, she said.
(Editing by Brian Moss and Tim Dobbyn) -----------
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