This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

4 Ways Washington Mutual's Bankruptcy Still Matters

NEW YORK ( TheStreet) -- Washington Mutual (WAMUQ.PK)'s three and a half year-old bankruptcy case drew toward a close on Friday, though issues it raised will linger for some time.

U.S. Bankruptcy Court Judge Mary Walrath approved the plan, which various stakeholders must vote to accept or reject before a March 7 deadline.

Washington Mutual was seized by regulators Sept. 25, 2008, with the bulk of its banking operations being sold to JPMorgan Chase (JPM - Get Report).

The holding company, however, went into Chapter 11, making it the largest bank failure in history and the second-largest bankruptcy after Lehman Brothers.

Nonetheless, while the public may have forgotten about WaMu, its resolution, such as it was, is likely to continue to impact the financial services industry for years to come. Here are four big questions that remain unresolved following WaMu's bankruptcy.

1. Winding down big banks looks messier than ever.

Think WaMu's three and a half year bankruptcy fight was a mess? At least the parts of WaMu that went into bankruptcy are close to being settled.

Still unresolved, however, is roughly $6 billion in liabilities that are in a kind of no man's land. Owners of those liabilities (mostly unsecured bonds) could not seek repayment either from JPMorgan or through the Chapter 11 process.

Pointing to this unresolved $6 billion, John Douglas, a partner at Davis Polk and former FDIC general counsel, describes WaMu's unwinding as "a long-running disaster."

"It makes you wonder how orderly liquidation is supposed to work in the context of a complicated institution, because Washington Mutual just wasn't that complicated," he says. "It's basically a retail bank highly concentrated in mortgage loans."

Douglas says it is up to the FDIC to determine "whether and when its going to distribute any money" to holders of the unresolved $6 billion in WaMu obligations, but the regulator has been silent on the issue.

The owners of these obligations could not be identified. Douglas says they originally were mostly large institutions, including Morgan Stanley (MS), The Bank of Ireland (IRE), and HBOS, now part of Lloyd's Banking Group, though many of the liabilities have since been bought by hedge funds.

FDIC spokesmen did not respond to an email message sent to them on Saturday asking about the unresolved $6 billion.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
JPM $62.60 0.00%
AAPL $130.28 0.00%
FB $81.53 0.00%
GOOG $565.06 0.00%
TSLA $218.42 0.00%


DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs