The Federal Deposit Insurance Corp. is not yet on board with Washington Mutual Inc.'s bankruptcy reorganization plan, including a massive tax refund to JPMorgan Chase & Co., according to the company and a Wall Street Journal report.
JPMorgan stands to get a $1.4 billion tax benefit following its 2008 acquisition of Washington Mutual's banking subsidiary, but the FDIC has reversed its stand on supporting such a payout, the Journal reported, citing unnamed sources.
Washington Mutual, which is tied to the biggest bank failure in U.S. history, said on March 12 it had agreed to split two potential tax refunds worth a combined $5.6 billion with JPMorgan and the FDIC.
A U.S. law that created the tax refund, however, specifically forbids companies that received bailout funds, which includes JPMorgan, from receiving such a payment.
The tentative deal among JPMorgan, the FDIC and Washington Mutual also would end their various legal fights over claims to disputed bank deposits. The agreement was to be finalized and included in the reorganization plan.
However, late on Friday Washington Mutual said it filed a plan of reorganization with the Delaware bankruptcy court that implements the terms of the settlement agreement but does not have everyone on board.
Washington Mutual said the FDIC had not agreed to all of the provisions of the draft settlement agreement. It added that discussions were ongoing among the parties and they were hopeful that such agreement will be obtained in the near future.
An FDIC spokesman said the regulator was working with all parties involved to reach agreement with respect to all terms of the proposed settlement.
"The plan, disclosure statement, and settlement agreement that were filed on Friday do not reflect the continuing discussions among the parties," the FDIC said in an e-mailed statement.
A JPMorgan spokesman was not immediately available for comment on Sunday night.
Seattle-based Washington Mutual filed for bankruptcy in September 2008 at the height of the global financial crisis.
Washington Mutual's jittery depositors yanked nearly 10 percent of the bank's $188 billion in deposits in a matter of days, prompting regulators to seize the operation.
After it was seized, the FDIC sold the bank to JPMorgan for $1.9 billion.
Washington Mutual also said on Friday that the reorganization plan would see it distribute more than $7 billion to creditors.
The plan also calls for the reorganized company to undertake a rights offering, under which certain creditors will receive a right to buy newly issued shares of the reorganized company. The reorganized company will have interest in WMI Investment Corp and WM Mortgage Reinsurance Co, it said.
It will cancel its current preferred and common shares.
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