WaMu parent company sues FDIC

The bankrupt holding company for Washington Mutual has sued the Federal Deposit Insurance Corp., alleging the agency has improperly denied potentially billions of dollars in claims against WaMu's former banking unit.

The suit, filed late Friday in federal district court in Washington, D.C., also claims the FDIC improperly sold WaMu's banking assets to JPMorgan Chase for $1.9 billion, rather than conducting a "straight liquidation" that could have produced more money for creditors — including the holding company.

FDIC spokesmen said the agency didn't comment on pending litigation.

The suit, by Washington Mutual Inc. or WMI, is one of the first to challenge the FDIC's authority over seized banking assets, and could set off further legal wrangling between different groups of creditors over what's left of the failed thrift.

One thing the WMI suit won't do, however, is unwind the deal with Chase, as some vocal former WaMu shareholders have been demanding.

Last September, the federal Office of Thrift Supervision, or OTS, seized Washington Mutual Bank, or WMB, and turned it over to the FDIC, which sold the assets and most of the liabilities to Chase. With more than $300 billion in assets, WMB was by far the largest bank failure in U.S. history.

WMI isn't seeking to undo the seizure. That wouldn't be feasible nearly six months on, said veteran banking analyst Bert Ely of Alexandria, Va.

WMB is rapidly being absorbed into Chase, Ely said, and "there's no way in hell you could unscramble that egg."

Nor would the stockholders, who own shares in WMI, likely see any money, regardless of how the suit plays out. They are at the end of a long line of actual and potential creditors, all of whom would have to be paid back in full before owners of common stock could get anything.

Unlike other businesses, failing banks don't go bankrupt. Instead, they are seized by state or federal regulators and turned over to a receiver — nearly always the FDIC. The agency sells off the entire bank when it can; if it can only find a buyer for parts of the failed bank, the agency holds onto the remaining assets and disposes of them over time.

The day after WMB was seized and sold, WMI — now shorn of its banking operations — filed for Chapter 11 bankruptcy protection.

The suit centers on several claims WMI has made against the FDIC to get back money it says it's owed by WMB or assets it says were improperly transferred to its former subsidiary before the seizure last fall.

The agency denied WMI's claims on Jan. 23, in what the company called a "cryptic" dismissal with no explanation.

Many of the claims don't have dollar amounts attached to them; those that do total as much as $13.8 billion. As of Dec. 31, the receivership had $1.94 billion in assets, all of it in cash.

The suit also could have significant implications for other big, troubled banks. As the financial crisis grinds on, regulators may find themselves taking over even larger banks than WMB. Unlike the smaller banks that make up most of the FDIC's seizures, Ely said the holding companies for big banks aren't mere shells.

"There's a lot more going on — more employees, more services to the subsidiary bank, a wide range of (financial) transactions," he said. "When the FDIC or the OTS pulls the bank out of the holding company, it's like pulling a major organ out of a body, and there's a lot of stuff dangling from it."

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com