Washington Mutual Spars With JPMorgan Over $3.7B In Cash
Peg Brickley
| 22 October 2009
JPMorgan Chase & Co. "is really sweating" over $3.7 billion that was in accounts at Washington Mutual Bank when JPMorgan took it over, an attorney for WaMu's former parent said Thursday.
Washington Mutual Inc., the former parent, says the cash belongs to it, and that JPMorgan has no evidence to the contrary, even though it obtained control of WaMu's information systems and most of its employees when it bought the failing thrift, more than a year ago.
"JPMorgan has been sitting on a mountain of information about the deposits," said David Elsberg, who's with Quinn Emanual Urquhart Oliver & Hedges. "They have all the witnesses and all that documents that they would need to create any issue. But there is no issue."
In 1,000 pages of legal papers, JPMorgan has made no showing it's entitled to the money, Elsberg said, arguing for a pretrial victory that would give Washington Mutual Inc. funds to pay off its creditors in bankruptcy.
JPMorgan is demanding a trial to determine whether the cash that was in Washington Mutual Inc.'s accounts at WaMu were bank deposits or a capital contribution from a worried parent to an ailing subsidiary.
If that's the case, JPMorgan says, the money belongs to it as part of its deal to buy WaMu "lock, stock and barrel."
"They are seeking $4 billion that they say they have in an institution that they ran and they ran into the ground," said JPMorgan attorney Robert Sacks, who's with Sullivan & Cromwell.
Washington Mutual Inc. filed for Chapter 11 protection and wants U.S. Bankruptcy Judge Mary Walrath to order JPMorgan to hand over the cash now. Walrath said Thursday she will rule later on the issue.
Besides JPMorgan, the parent company is up against the Federal Deposit Insurance Corp., which says it may have claims on the cash as well. The FDIC is acting as receiver for WaMu, sifting through claims for payment from creditors of the thrift.
John Clark, an attorney for the FDIC, said Thursday if JPMorgan is in danger of losing control of the cash, the agency will order JPMorgan to transfer the bank accounts back to the FDIC. Clark is with DLA Piper.
The FDIC says it needs to keep the cash right where it is while it investigates whether the money is property of the parent company or of the bank.
Investors in the parent company bonds are watching the cash clash closely. JPMorgan and Washington Mutual Inc. have other battles to fight, including one over billions of dollars worth of tax refunds. However, the contents of parent-company accounts at WaMu are the largest single asset of the Seattle holding company, and would be enough to fuel a fast payoff.
Parent company creditors are owed only about $6 billion. WaMu bondholders are out more than $13 billion, and are eyeing the cash intensely, as well.
"It's our money," said Philip D. Anker, attorney for investors who bought bonds in WaMu, the operating bank, rather than in the bank holding company. He's with Wilmer Cutler Pickering Hale & Dorr.
JPMorgan attorney Sacks said there is something "suspect" about the parent's claim it had "$4 billion sitting" in WaMu at a time when the thrift was on the brink of failure.
"It's our money," said Sacks.
WaMu was taken over by regulators in September 2008, after customers yanked $16.7 billion worth of deposits from it in a 10-day period.
"The bank failed. It was put in a position where it was unsafe and unsound," Sacks said. Bank records indicated Washington Mutual made book entries about funds it didn't have during WaMu's final days, the lawyer said.
Much of the cash came from a $7 billion transaction in April that involved the sale of parent company stock in investors led by TPG Inc., Sacks said. However, the money was raised "for the bank," or WaMu, and not for Washington Mutual, the parent, so JPMorgan should keep the cash as part of the acquisition of WaMu, the lawyer said.
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