The FDIC seizure of Washington Mutual’s banking operations has resulted in a myriad of claims in which the bank holding company is seeking to get back as much as $17 billion.
Besides the $4 billion WaMu argued JP Morgan owes it in a hearing last week, it also alleges that the FDIC owes it $6.5 billion in capital contrubtions made to its bank, $4 billion in preferred securities and $3 billion in tax refunds, according to an article in the New York Law Journal.
That article provides highlights and analysis of each of the various pending lawsuits and can be found here. The FDIC and JP Morgan have filed counterclaims.
It is rare for bank holding companies to sue the FDIC after their banks have been seized because the bank’s liabilities are usually greater than its assets, the article notes. Here, however, the agency intervened when the bank was attractive enough to entice a buyer (JP Morgan for $1.9 billion) and Washington Mutual is arguing that it would have been worth more in liquidation.
Attorneys and legal experts were “divided,” the NYLJ said, over Washington Mutual’s chances.
NYLJ: Professor Patricia McCoy, a banking law expert at the University of Connecticut School of Law, was sceptical of many of the holding company’s claims, particularly its argument that the FDIC sold its assets for too little. Even on the open market, Washington Mutual’s toxic securities would have gone for cut-rate prices, she said.
“This type of claim we occasionally saw back in the savings-and-loan crisis,” McCoy said. “And the courts almost always dismissed the claim out of hand and said the holding company had no standing to raise it or that the courts didn’t want to go in and second-guess the sales price. The courts just don’t want to get into that.”
But Ronald Glancz, chairman of the financial services group at Washington-based Venable, said he thought some of Washington Mutual’s claims might hold water and would likely come down to the facts of the particular assets. The $4 billion in deposits is one such open question, said Glancz. “The fact is, when a holding company or anybody has a deposit at the bank … I think the ordinary person would say that, no matter what happens to that deposit, it’s my money,” said Glancz.
The outcome of who will get what is up in the air, but what is pure fact is that even when a failing financial institution finds a saviour , the fall-out wind-downs and litigation will last for years. See, off course, the Bank of America acquisition of Merrill Lynch.
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