It was the largest bank failure in U.S. history. It was also the most quiet, when it comes to media attention.
And now it's triggered one of the nastiest legal fights ever seen in the banking industry.
Seattle-based Washington Mutual Bank was closed by the U.S. government in September, 2008, during those fateful early autumn days when Fannie Mae (FNM) and Freddie Mac (FRE) were seized by the government, when Lehman Bros. and AIG (AIG) were failing, when Wachovia was on the ropes, and Merrill Lynch veered toward collapse as well.
WaMu failed amid mounting mortgage losses and after a 10-day bank run which saw panicked customers yank out $16.7 billion of deposits.
The Federal Deposit Insurance Corp. seized WaMu's $307 billion in banking assets and sold them to JPMorgan Chase (JPM) for $1.9 billion; a day later, WaMu's parent holding company filed for bankruptcy protection.
WaMu's parent company has sued, saying that the $1.9 billion sale price was drastically, recklessly low. More than a year later, the merger has sunk into a tangled rat's nest of law suits, fingerpointing and recriminations, and reports indicate the number of parties investigating the seizure is growing.
WaMu's parent and JPMorgan are now fighting over tens of billions of dollars in deposits, with both claiming ownership. WaMu's parent has also sued the FDIC for more than $13 billion in connection with the loss of its banking operations, a case that is still pending in federal court in Washington, D.C.
And WaMu's bank regulators, the FDIC's Inspector General and the Office of Thrift Supervision, are reportedly probing the sale. So is the Senate Permanent Subcommitteeon Investigations; the seizure and sale is apparently part of a broader task force probe headed by Federal Bureau of Investigationthat's looking into the bailouts. Sen. Maria Cantwell, D-Wash., is also reportedly looking into the allegations.
In its complaint filed with the U.S. District Court for D.C., WaMu's parent, which was not purchased by JPMorgan, alleges the FDIC, WaMu's receiver, spearheaded a merger that saw the bank sold to JPMorgan at an unreasonably lowball price, and that the FDIC made a nontransparent "cryptic disallowance" of its claims, prompting the lawsuit.
WaMu's parent also demands up to $6.5 billion of capital contributions it said it made to its banking unit from December 2007 through the time the FDIC seized it, reports indicate.
And WaMu's parent also wants the return of $4 billion of trust preferred securities it said were wrongfully transferred to the banking unit, and believes it may be entitled to as much as $3 billion of tax refunds, reports indicate. It also wants damages of $177.1 million related to unpaid loans made to the banking unit.
However, WaMu's parent just hit a roadblock. A Delaware bankruptcy judge recently denied the parent's request to force government regulators and others to turn over documents, the Associated Press reports.
AP says WaMu's parent sought the records as part of an effort to investigate potential business tort claims based on alleged misconduct by JPMorgan Chase. Washington Mutual stakeholders allege in a Texas lawsuit that JPMorgan engineered a plan to damage Washington Mutual's banking subsidiaries so it could buy them on the cheap, the AP reports.
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