Oct 14

WaMu sues FDIC for more than $13 billion over forced sale

Washington Mutual, the bankrupt, seized and “under investigation” financial institution which saw some operations forcibly sold off to JPMorgan Chase in 2008, is suing the agency that guarantees Americans’ deposits, and that agency is running low on funds.

Washington Mutual (WaMu), formerly one of the nation’s most prestigious banks and alleged holder of over $307 billion in assets, is suing the Federal Deposit Insurance Corporation for more than $13 billion over the roll-up of its banking division into JPMorgan Chase & Co.

Washington Mutual was seized by federal regulators in Sept. 2008; the company filed for bankruptcy immediately thereafter. The ensuing investigation “one of the largest and most complex federal investigations ever undertaken in Western Washington,” a US Attorney told the Seattle Times

“In a complaint filed with the U.S. District Court for the District of Columbia, the thrift’s former parent accused the FDIC of having on January 23 made a ‘cryptic disallowance’ of its claims, prompting the lawsuit,” reported Reuters.

“It also accused the FDIC of agreeing to an unreasonably low price in arranging the a $1.9 billion sale of the banking business to JPMorgan on September 25, when regulators seized Washington Mutual and appointed the FDIC as receiver.”

“On a Friday night in September 2008, the government forced WaMu into a shotgun marriage with new owners at pennies on the dollar. The FDIC seized the bank and then sold it to JPMorgan Chase for $1.9 billion,” reported MSNBC.

“[A] federal task force continues to comb through a mountain of documents looking into possible criminal charges against WaMu executives. It’s looking for fraud in how the company built such an unstable business based on subprime mortgages.”

When banks insured by the FDIC are seized or declare bankruptcy, the agency returns depositors’ funds up to $100,000.

“The thing is, the FDIC that is supposed to pay customers is running low ? there have just been a lot of bank failures…” noted NPR’s Jim Zarroli when JPMorgan Chase agreed to purchase WaMu’s banking division.

On the same day the United States saw its 20th bank failure of 2009.

An FDIC spokesman would not comment on the suit to Reuters.