WaMu Stock Highest Since Failure

Updated with closing share price.

NEW YORK (TheStreet) -- Washington Mutual (WAMUQ.PK) shares surged past the 50 cent-mark on Monday for the first time since the failed thrift was seized by regulators in late September 2008.

The optimism stems from a likely resolution this week of legal disputes between WaMu and JPMorgan Chase (JPM), says Kevin Starke, an analyst with CRT Capital Group.

The roughly 16-cent rally to finish at 55 cents represented a 42% rise in the stock, which rose for a third straight session. Volume of nearly 67 million was just shy of quadruple the issue's trailing three-month daily average of 17 million.

JPMorgan assumed most of WaMu's assets the day it was shuttered, marking the largest bank failure in U.S. history. Since then, attorneys for WaMu's holding company have been battling in court with JPMorgan over billions in disputed assets.

Last week, an attorney representing WaMu told the court that negotiations between the parties, which include the Federal Deposit Insurance Corp., have lately gained momentum. JPMorgan and the FDIC subsequently asked for an extra week to sort out the dispute.

CRT's Starke thinks a settlement could result in some $4 billion-7 billion worth of deposits being awarded to WaMu, though it would take significantly more than that in order for WaMu's common stock to be worth anything.

Still, Starke, who has been bearish on the chances of a recovery in WaMu's common stock, says that, while it is still "very possible" the stock ends up worthless, he at least sees a rationale for buying it.

"There are two real costs to any type of investment. One is the actual principal you are laying out, and the second is the time value -- the opportunity cost of doing other things. The time horizon on this could be pretty short, so you will find out if you're wrong or right pretty quickly," Starke says.

If the parties cannot reach a settlement, bankruptcy judge Mary Walrath will likely make a ruling this Friday. Starke expects the ruling would be favorable to WaMu, though it could then occasion further litigation.

In addition to the bankruptcy case, at least one major shareholder lawsuit, American National Insurance Co. vs. FDIC, is still making its way through the courts. In the case, shareholders and bondholders argue JPMorgan "motivated by greed and unrestrained by moral or legal boundaries...exploited a perceived liquidity crisis in the banking industry to improperly and illegally take advantage of the financial difficulties of Washington Mutual."