By Tom Hals
WILMINGTON, Del., Dec 2 (Reuters) - Washington Mutual Inc defended on Thursday its plan to repay creditors, while attorneys for disgruntled shareholders and hedge funds attacked the proposal, which leaves them with next to nothing.
Washington Mutual's chief restructuring officer, William Kosturos, took the stand to defend the company's proposed settlement, which distributes $7 billion to pay back most Washington Mutual creditors in full. But as often happens in bankruptcy, shareholders are unlikely to get anything.
U.S. Bankruptcy Judge Mary Walrath is holding hearings on the plan, which seem likely to run into next week.
The company filed for bankruptcy in September 2008, a day after its lending business was seized by regulators and sold to JPMorgan Chase & Co for $1.9 billion in the biggest bank failure in U.S. history.
At the heart of the reorganization plan is a deal between Washington Mutual, JPMorgan and the Federal Deposit Insurance Corp -- which sold the bank -- to divide disputed cash, tax refunds and other assets. Those holdings will be liquidated and cash will be distributed to the hedge funds and other investors that hold WaMu's notes and securities, but there will be nothing left for stockholders.
Kosturos, an employee of turnaround consultancy Alvarez & Marsal, was questioned by attorneys who represent the official committee of equity holders and holders of disputed securities and warrants who are unlikely to recover anything.
The shareholders' attorney, Justin Nelson, pressed Kosturos for three hours about how his team sized up assets and what value they put on dropping potential legal claims against JPMorgan and others in return for peace.
Nelson attacked the settlement, which came together after Washington Mutual obtained a $2.7 billion tax refund from a stimulus program that was promoted as a way to help homeowners and the unemployed.
Nelson argued that JPMorgan, not U.S. taxpayers, should be funding a large share of the settlement because the Wall Street bank would benefit from ending the threat of lawsuits seeking billions of dollars.
Shareholders have been battling for two years for their chance to put the company's advisors on the stand. They have argued that JPMorgan could be sued for undermining confidence in Washington Mutual Bank in a campaign to acquire it on the cheap.
Kosturos countered that JPMorgan had its own claims against Washington Mutual, such as a claim on the tax refund, because it bought the bank that generated the losses.
Kosturos also defended the value of less than $200 million put on the company's mortgage reinsurer, which it plans to bring out of bankruptcy.
Shareholders argued the business, which will emerge from bankruptcy owned by hedge fund creditors of Washington Mutual, will have potentially valuable tax credits stemming from billions of dollars of net operating losses.
CLOSED HEARINGS?
The hearings are scheduled to wrap up on Friday, which seems unlikely. The company said it will call seven more witnesses.
The official committee of equity holders asked that they be allowed to introduce some privileged client-attorney information to rebut the expected testimony of Jonathan Goulding. The request could require the courtroom to be closed to the public, which the judge said she was reluctant to do.
Founded in Seattle in 1889, Washington Mutual was once the largest U.S. savings and loan, with more than 2,500 branches, $300 billion in assets and $188 billion in deposits when it was seized.
Former Chief Executive Officer Kerry Killinger, who stepped down just weeks before the bank's collapse, led the company through a string of acquisitions and pushed to expand the riskier loans that came to be known as subprime mortgages.
(Reporting by Tom Hals; editing by Andre Grenon) Keywords: WASHINGTONMUTUAL/ (thomas.hals@thomsonreuters.com +1-646-223-6356; Reuters Messaging thomas.hals.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
WILMINGTON, Del., Dec 2 (Reuters) - Washington Mutual Inc defended on Thursday its plan to repay creditors, while attorneys for disgruntled shareholders and hedge funds attacked the proposal, which leaves them with next to nothing.
Washington Mutual's chief restructuring officer, William Kosturos, took the stand to defend the company's proposed settlement, which distributes $7 billion to pay back most Washington Mutual creditors in full. But as often happens in bankruptcy, shareholders are unlikely to get anything.
U.S. Bankruptcy Judge Mary Walrath is holding hearings on the plan, which seem likely to run into next week.
The company filed for bankruptcy in September 2008, a day after its lending business was seized by regulators and sold to JPMorgan Chase & Co for $1.9 billion in the biggest bank failure in U.S. history.
At the heart of the reorganization plan is a deal between Washington Mutual, JPMorgan and the Federal Deposit Insurance Corp -- which sold the bank -- to divide disputed cash, tax refunds and other assets. Those holdings will be liquidated and cash will be distributed to the hedge funds and other investors that hold WaMu's notes and securities, but there will be nothing left for stockholders.
Kosturos, an employee of turnaround consultancy Alvarez & Marsal, was questioned by attorneys who represent the official committee of equity holders and holders of disputed securities and warrants who are unlikely to recover anything.
The shareholders' attorney, Justin Nelson, pressed Kosturos for three hours about how his team sized up assets and what value they put on dropping potential legal claims against JPMorgan and others in return for peace.
Nelson attacked the settlement, which came together after Washington Mutual obtained a $2.7 billion tax refund from a stimulus program that was promoted as a way to help homeowners and the unemployed.
Nelson argued that JPMorgan, not U.S. taxpayers, should be funding a large share of the settlement because the Wall Street bank would benefit from ending the threat of lawsuits seeking billions of dollars.
Shareholders have been battling for two years for their chance to put the company's advisors on the stand. They have argued that JPMorgan could be sued for undermining confidence in Washington Mutual Bank in a campaign to acquire it on the cheap.
Kosturos countered that JPMorgan had its own claims against Washington Mutual, such as a claim on the tax refund, because it bought the bank that generated the losses.
Kosturos also defended the value of less than $200 million put on the company's mortgage reinsurer, which it plans to bring out of bankruptcy.
Shareholders argued the business, which will emerge from bankruptcy owned by hedge fund creditors of Washington Mutual, will have potentially valuable tax credits stemming from billions of dollars of net operating losses.
CLOSED HEARINGS?
The hearings are scheduled to wrap up on Friday, which seems unlikely. The company said it will call seven more witnesses.
The official committee of equity holders asked that they be allowed to introduce some privileged client-attorney information to rebut the expected testimony of Jonathan Goulding. The request could require the courtroom to be closed to the public, which the judge said she was reluctant to do.
Founded in Seattle in 1889, Washington Mutual was once the largest U.S. savings and loan, with more than 2,500 branches, $300 billion in assets and $188 billion in deposits when it was seized.
Former Chief Executive Officer Kerry Killinger, who stepped down just weeks before the bank's collapse, led the company through a string of acquisitions and pushed to expand the riskier loans that came to be known as subprime mortgages.
(Reporting by Tom Hals; editing by Andre Grenon) Keywords: WASHINGTONMUTUAL/ (thomas.hals@thomsonreuters.com +1-646-223-6356; Reuters Messaging thomas.hals.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.