WAMUQ Washington Mutual Inc

[chuck44l]

WAMUQ Another popular play in the chat room Friday + 35% on increased volume.Congrats to all who got in.

[chuck44l]

Deposit was one of WaMu's largest assets

* Deposit is claimed by WaMu, JPMorgan and FDIC

* Court hearing on dispute postponed for one week

By Tom Hals

WILMINGTON, Del., March 4 (Reuters) - Washington Mutual Inc could reach agreement with JPMorgan Chase & Co and a government agency over a disputed $3.7 billion bank deposit in the next week, the bankrupt company's attorney told a court on Thursday.

Washington Mutual (WAMUQ.PK) was in court to try to resolve a dispute centering on one of its largest potential assets, $3.7 billion that the holding company said was a deposit it had at its banks.

The deposit was seized along with the company's lending operations in September 2008 in the biggest bank failure in U.S. history.

Washington Mutual's attorney, Brian Rosen of Weil, Gotshal & Manges, asked the court to adjourn the hearing for one week to give the parties more time for talks.

He said the Federal Deposit Insurance Corp and JPMorgan requested the added time and that Washington Mutual was reluctant. But he also said there was "momentum" to the negotiations.

Bankruptcy Judge Mary Walrath granted the request to postpone the hearing for one week.

The seized banks were immediately sold by the FDIC to JPMorgan (JPM.N) for $1.9 billion. The Seattle-based holding company filed for bankruptcy the next day.

JPMorgan has described Washington Mutual's bookkeeping as a "shell game" and said the money may have been a capital contribution that allowed the bank to meet regulatory requirements.

The FDIC has said it could demand the return of the deposit to itself under the agreement to sell the banking operations.

The case is In re Washington Mutual Inc, U.S. Bankruptcy Court, District of Delaware, No. 08-12229. (Reporting by Tom Hals; editing by John Wallace)

[chuck44l]

Join us in the chat room for more talk on WAMUQ at the link below.

http://www.stockplaysonline.com/visichat/

[chuck44l]

i had to pull a 1 year chart as the pps is already above the 3 month i normally use i typically dont believe resistance that is
older then about 6 months is accurate but this is what i show .4399 from sept with nothing above this could be a very nice breakout. Remember nothing is a given in this buisness, Protect profits and cut small losses befor they become big losses !!!! Join other WAMUQ traders in our free stock chat room at the link below.

http://www.stockplaysonline.com/visichat/

[chuck44l]

WAMUQ looking very good premarket +24%

[chuck44l]

WAMUQ remains very strong Currently trading at hod at .70 + 27%

[chuck44l]

Huge pullback on WAMUQ a few in the room got back in around the .36 area for a quick flip I will followup later on this trade GLTA

[chuck44l]

So far the best we could do on the latest .36 entry has been around 20% still not a bad flip though. I do suggest not holding this one overnite. Jmo

[chuck44l]

After federal bankruptcy Judge Mary F. Walrath denied Washington Mutual’s (WAMUQ.PK) reorganization plan on September 13th, issues of WaMu’s corporate parent debt dropped profoundly, largely in part to her written opinion. These debts, which had traded for 30 cents to 1 cent on the dollar the day following the company’s September 26th, 2008 chapter 11 filing, had climbed significantly throughout the course of the nearly three year case, with issues eventually reaching a high of 122 cents to 82 cents on the dollar for the most junior issue.

The previously assumed over par payout of the bonds was based upon the belief that WaMu would award its creditors their individual contract rates which ranged from 3.22 to 8.25%. Constant delays and repeated new reorganization plans played well for both attorney billables and hedge funds which held significant amounts of the parent company debt. By two years into the case some debt issues expected returns as high as 117 cents on the dollar. A year ago I reported on this, questioning the rational of paying over par for a defaulted security, especially for such a low yield.

All of that changed, however, when the judge found colorable claims regarding insider trading by the hedge funds that hold large portions of WaMu’s debt. Consequently, she ruled that post-petition interest would be paid at the Federal Judgment Rate of 1.95% rather than the individual contract rate. Debt securities would have immediately traded downwards based on this ruling alone; however, the judge also recognized the fine print of the case, which should have maintained the high debt prices. It did not, however.

In a clause largely ignored throughout the majority of the case, the most junior WaMu debt issue known as the PIERS (WAHUQ.PK) features a subordination provision which states that holders of PIER securities must pay higher ranked debt any lost interest. Now, since the judge has ruled that WaMu debt will be paid at FJR rather than the contract rate, this provision has been triggered. The PIERS, which in the first reorganization plan were given the impression that they would be receiving 74 cents on the dollar, then 57 cents in a second plan, now are at risk to receive nothing.

This is in part because they may have to pay the difference of interest between the individual contract rates and the FJR, an amount of nearly $500 million, assuming the case concludes by the end of this year, but also because of $340 million in possible litigation claims against Dime Bancorp (DIMEQ.PK) warrant holders. If the provision is strictly enforced and Dime Bancorp warrants prevail entirely in their claims, this would completely extinguish any PIERS recovery. PIERS shares plunged in response to the court’s opinion dropping over 70% to 12.5 cents on the dollar. Dime Bancorp warrants remained steady at 22 cents on the dollar.

Curiously, the more senior debt that would have gained from the $500 million receivable still dropped, resulting in a “lose-lose” situation. According to the markets, more senior debt now trades at a price indicative of not receiving the additional $500 million, while the most junior PIERS debt trades at having to pay the $500 million. Since the $500 million has to go somewhere, who do you believe?

Issue
Coupon
Price 7/27/10
Price 9/19/2011
FJR Recovery
Contract Recovery
2010 Yield
FJR Yield
Contract Yield

WAMU.IE
4.00%
104.8
101.5
105.85
112.24
3.2%
4.29%
10.6%

WAMU.JB
2.95%
92
100.19
105.85
108.99
15.2%
5.64%
8.78%

WAMU.IL
4.20%
106
104.75
105.85
118.54
6%
1.05%
13.16%

WAMU.IM
3.09%
99.06
100.25
105.85
109.42
7.29%
5.59%
9.14%

WAMU.JC
5.50%
109.13
100
105.85
116.95
1.99%
5.85%
16.95%

WAMU.IP
5%
107
101.49
105.85
115.38
3.03%
4.3%
13.69%

WAMU.IO
3.50%
98.75
101.75
105.85
110.68
8.47%
4.03%
8.78%

WAMU.IS
3.22%
99.13
100.56
105.85
109.81
7.48%
5.26%
9.2%

WAMU.IT
5.25%
107.25
101.5
105.85
116.17
3.29%
4.29%
14.53%

WAMU.HE
8.25%
111.69
100
105.85
125.77
4.92%
5.85%
25.77%

WAMU.IH
4.63%
102.61
107.25
105.85
114.21
6.69%
-1.4%
6.49%

WAMU.JG
7.25%
107.25
99.75
105.85
122.55
7.26%
6.12%
22.86%


As the table displays, 11 out of 12 debt issues are trading slightly below their projected FJR recoveries and all significantly below their contract yield recoveries. Because the bond market aims for lower risk lower returns, WaMu more senior debt is stating they don’t expect to be paid the additional $500 million. This statement is seconded by data from 2010 yields, when it was assumed the contract rate would be paid. Note the similarity in yields then to yields now. Despite this evidence, PIERS traders continue to exchange their securities near worse case scenario prices.

Even the judge admits in her opinion that while internal agreements between creditors should stand, it is not the bankruptcy court’s job to act as a collection agency. She opines (.pdf) that (bold added for emphasis):

To the extent that this results in them getting more or less than their contract rate of interest, it may be a matter between them and the other creditors who are parties to a subordination agreement, but it is irrelevant to the Debtors’ obligations under the Bankruptcy Code.... provisions that give effect to the subordination provisions in the indentures and require subordinated creditors to pay senior creditors post-petition interest at the contract rate even though the Debtors are only required to pay interest at the federal judgment rate are not violative of the Bankruptcy Code. [While the PIERS may receive payment in full of their claims from the Debtors, they may be required to give a part of their distribution to senior creditors.]

In other words, while the internal agreement is not denied by the court, the $500 million is a matter between creditors and not her job to enforce. Note also her multiple use of the word, “may” and the lack of a single “must”.

So what should an investor do with a current “lose-lose” situation? The money most certainly has to go somewhere. My position is to side with the more senior bond prices which up to this point in the case have been the most accurate. If the more senior bonds are expecting to not be paid according to their current prices, then the $500 million is more likely to remain with the PIERS. At twenty-three million shares issued, an investor willing to take a stand on this uncertain money could turn up to $21.73. PIERS currently trade near $4.

Given that the judge has now ordered the entire bankruptcy case to mediation, out of an effort to preserve dwindling estate monies from further billables and interest accruals, the $500 million will be a major point for all parties to find some sort of compromise to agree upon. I would not expect the full $21.73, but certainly more than $4. Mediation for the WaMu case begins October 6th.

[chuck44l]

On September 13th, Federal bankruptcy Judge Mary F. Walrath denied Washington Mutual’s (WAMUQ.PK) reorganization plan for the second time, citing improper post-petition interest rates and “colorable” claims of insider trading. However out of concern that the case would simply unravel into more costly litigation, she immediately ordered that all parties proceed to mediation.

In January the judge had denied WaMu’s reorganization plan for the first time based on multiple minor issues but approved the majority of the plan built around a global settlement agreement that paid all WaMu’s creditors, the FDIC, JP Morgan (JPM), and some WaMu bank bondholders. The GSA however left nothing for shareholders, resulting in many individual objectors to the plan. During the confirmation hearing, one independent shareholder, Nate Thoma, raised sufficient enough concern with hearsay evidence of insider trading by four hedge funds involved in the case that the judge ordered a limited scope probe of the allegations.

A Previous Settlement


While the insider trading charges had been 10 months in the making, they almost never made it to trial. After repeated rescheduling of depositions, a May settlement was announced that included all parties involved. The terms of the settlement had WaMu shareholders receiving the reorganized company valued at $160 million, but with $160 million in debt and preferred securities to pay back, a $100 million bridge loan for the company, and $30 million for a litigation fund to pursue some third parties not exempted by the GSA. While on the surface, this settlement appeared to give equity very little, the main value was that WaMu shareholders would have been able to preserve valuable tax breaks from net operating losses against future income between the amount of $6 and $17.7 billion.

Talks eventually broke down in June though after some WaMu shareholders deemed the settlement insufficient. Attorneys representing equity wanted a recovery for both preferred and common shares, however there was simply not enough money available from the deal to appease everyone. In an attempt to preserve the settlement, equity attorneys sought additional considerations from the hedge funds. They refused, gambling that a win at trial would dispel the need for any concessions.

A Lost Gamble, "Reckless" Actions

Despite their best efforts to persuade her otherwise, the hedge funds arguments – which ranged from that the ethical trading walls are too cumbersome and expensive to that they lost money on some of their trades so they couldn’t have known what was going on – were largely ineffective with Judge Walrath. She decided that the hedge funds were suspicious of engaging in insider trading both under the classical and misappropriation theories. In her 139 page opinion, the court wrote that, "The Court finds that the Equity Committee has made sufficient allegations and presented enough evidence to state a colorable claim that the Settlement Noteholders acted recklessly in their use of material nonpublic information."

Instead Judge Walrath opined that while there was sufficient merit to the insider trading claims for the equity committee to proceed with their litigation, she ruled that in order to preserve the estate’s limited assets all parties would go to mediation. This order came with an added pressure to settle. Should mediation attempts fail, the judge indicated that she is prepared to allow the equity committee to proceed with a more detailed discovery of the funds’ actions. If successful at trial, the equity committee would then be able to hold equitable disallowance against the hedge funds, resulting in their debt claims being expunged and their distribution to be redistributed to other creditors and ultimately to shareholders.

Strength of the Case

Now with the judge ruling that the insider trading charges have merit, once again the hedge funds are in the hot seat. Shareholders allege that the four hedge funds, Appaloosa Management, Aurelius Capital Management, Centerbridge Partners, and Owl Creek Asset Management used non public material information from closed door settlement negotiations between WaMu, JP Morgan, and the FDIC to purchase deeply discounted parent company debt with the knowledge they would certainly profit. As the on and off negotiations progressed, it is alleged that at least two of the hedge funds also used their insider knowledge to sell higher seniority debt they had already profited on to buy up junior debt as it became clearer that WaMu’s lower priority creditors were more likely to be paid. This knowledge provided an unfair advantage over the rest of the investing public, which was unaware that negotiations were even in progress. In one such example, a $4 billion dollar deposit asset held by WaMu had been agreed upon early on by all that it belonged with the parent corporation. This material insider knowledge however was in direct contrast to court filings and news reports which led the public to believe the asset was still hotly contested.

As usual, Judge Walrath refrained from showing her hand in regards to her level of conviction on the strength of the charges. Instead she only ruled that the minimum bar had been achieved in order to allow for the charges to progress. It is evident that by deciding to hold back a more detailed opinion the judge is looking for all the parties to come to an unbiased settlement, one not weighted towards any one side by a preliminary judiciary decision.