WILMINGTON, Del. – Lawyers for Washington Mutual Inc. and its bondholders stood before a bankruptcy court judge Friday to tussle over assets – including $5 billion in cash – and set timelines for the demise of what was once the nation’s largest savings and loan.
On the first day of hearings in the Chapter 11 bankruptcy filing of Seattle-based WaMu, bondholders who hold $800 million of senior notes expressed concern about control over the $5 billion and called for greater transparency.
“We have precious little in the way of facts,” said Thomas Lauria, a lawyer for the 16 bondholders. “We are very concerned about the status of our debt holders and … how fast things seem to be moving outside the court.”
Lawyers also asked Judge Mary F. Walrath of the U.S. Bankruptcy Court in Wilmington for joint administration of cases, an extension of the date by which they must file a list of creditors, statement of financial affairs and other documents.
They sought approval for these and other actions that the bankruptcy filing said will let WaMu “operate in Chapter 11 with minimal disruption and loss of productivity.”
The 119-year-old financial institution had built its fortune on home loans, but went down in flames as a result of a bad bet on home mortgages.
The thrift, rising from the ashes of the Great Seattle Fire of 1889 to extend loans to homeowners for rebuilding, was sold last month for $1.9 billion to JPMorgan Chase & Co. It is the largest failure of a U.S. bank.
Now holders of unsecured debt are fighting for JPMorgan’s $1.9 billion payment and whatever is left of WaMu – other companies, real estate assets – that the investment bank didn’t buy.
WaMu’s end was dictated by a swift toppling of financial dominoes that involved credit ratings agencies, talk of instability, and quick action by federal regulators.
During the housing boom, WaMu ran into trouble after getting caught up in loans to people with bad credit, known as subprime borrowers. Troubles then spread to other parts of WaMu’s home loan portfolio, namely its “option” adjustable-rate mortgage loans. Option ARM loans offer low introductory payments and let borrowers defer some interest payments until later years.