WaMu noteholders want company liquidated
WILMINGTON, Delaware (Reuters) - Noteholders of Washington Mutual Inc asked a bankruptcy judge on Tuesday to liquidate the company as its reorganization was on the "verge of unraveling" due to "scorched earth" tactics by shareholders left nothing in the plan.
The request, filed by a group of 16 funds that hold $2.3 billion of Washington Mutual Inc securities, was partly in response to a request by shareholders for an examiner to investigate the company's collapse.
The noteholders said the reorganization is being threatened by the possibility that other parties will soon be able to file their own plans, by the company's insistence that insiders be given releases from legal claims and by shareholders' request for an examiner.
Washington Mutual said in a separate court filing that shareholders, who will get no recovery in the company's proposed reorganization, were demanding an independent investigation of the company's collapse in the hopes of getting a "pay off."
Shareholders last week asked the bankruptcy court overseeing Washington Mutual's Chapter 11 case to appoint an examiner to investigate the failure of the company's lending business and the value of legal claims stemming from it.
Their request was accompanied by documents released by a congressional panel that held hearings about the collapse of Washington Mutual's lending business, which was the biggest bank failure in U.S. history.
The company called the examiner request a "desperate attempt by the equity committee to throw any and every allegation against the wall in the hope that something will stick," according to its filing on Tuesday.
Washington Mutual Bank was seized in September 2008, at the height of the financial panic, and sold to JPMorgan Chase & Co for $1.9 billion.
Washington Mutual proposed a reorganization plan earlier this year that leaves nothing for shareholders and distributes around $7 billion to creditors.
Shareholders have estimated the company may have assets worth up to $20 billion when factoring in potential legal claims.
The court recently appointed an official equity committee, meaning many of shareholders' legal expenses are now paid by Washington Mutual.
The funds said appointing a trustee to liquidate the company would eliminate the risk that shareholders, who have nothing to lose, will launch protracted legal fights against the company's "virtual army of expensive, but unsupervised, professionals."
The funds seeking the liquidation include units of Bank of America and Citigroup as well as Silver Point Capital and Davidson Kempner Capital.
A hearing on the matter is scheduled for Wednesday at 10:30 a.m. EDT.
Shares of Washington Mutual closed down 1.8 percent at 16.3 cents in pink sheet trading on Tuesday.
The case is In re Washington Mutual Inc, U.S. Bankruptcy Court, District of Delaware (Wilmington), No. 08-12229.
(Reporting by Tom Hals; Editing by Matthew Lewis and Lincoln Feast)