WILMINGTON, Del. – A lawsuit that is some two decades old and which has its roots in the savings and loan crisis of the late 1980s has apparently come to the end, after a judge signed off on a deal in which Washington Mutual Inc. will collect $50 million from the federal government.
Judge Mary Walrath has signed off on the settlement at a hearing in the Bankruptcy Court in Wilmington, Del., where Washington Mutual took cover in the wake of the largest banking collapse in history. Washington Mutual Bank, or WaMu, was seized and sold by regulators in September 2008, depriving its parent, Washington Mutual, of its main operating business.
According to a report that first appeared in American Banker, an affiliate of Credit Union Journal, the settlement has its roots in the record-breaking bank failure of its time, that of American Savings Bank. American Savings was sold as part of regulators' efforts to resolve the S&L crisis. The company that bought it was later acquired by Washington Mutual.
As part of the acquisition, Washington Mutual picked up the right to sue the government over the American Savings deal. A lawsuit had already been filed accusing the government of defaulting on a promise that the buyer that shouldered the burden of the “bad bank” American Savings would not have to put up more capital.
Court action took years, culminating in a September 2008 order by a federal court instructing the government to pay Washington Mutual $55 million. That money was received in the Chapter 11 coffers after wrangles with the U.S. and with JPMorgan Chase & Co., American Banker reported.
A second judgment was issued in the spring, $83 million the U.S. was told to pay due to breaching another section of the agreement it made when it sold American Savings. That is the judgment involved in the settlement approved Thursday, court documents say.
The cash from the settlement will be part of the roughly $7.3 billion that Washington Mutual hopes to distribute if it can get its Chapter 11 plan approved in early 2012. Filed in mid-December, the Washington Mutual plan is the seventh version of a distribution scheme that will wrap up the affairs of WaMu’s former parent, according to American Banker.
