Nearly three and a half years ago Washington Mutual went bankrupt, dragged down by its shoddy lending practices and fleeing depositors. After regulators seized its banking operations, few thought WaMu had much future -- except as an employment project for bankruptcy lawyers.
But perhaps as soon as the end of this month, a sliver of the old WaMu is set to emerge from bankruptcy. It will have offices in the old Washington Mutual Tower, at least for now, and be majority-owned by the old company's preferred and common shareholders.
Don't look for khaki-clad tellers, rodeo grandmas, or any other relics of the former WaMu, though -- there's no bank left. But even though the new company's name, executive team and business plan all are still to be determined, it represents ordinary shareholders' best chance for getting anything of value out of the WaMu wreckage.
"So many times in bankruptcy, shareholders never get this far," said James Scott, of Seattle, a member of the committee that has represented shareholders during the bankruptcy. "For shareholders to have the chance to participate in a company that is moving forward, that could provide for some meaningful recovery down the road -- it's a huge win."
The new company -- call it NewCo for short, since a permanent name hasn't yet been picked -- will have just one operating unit, a small mortgage-reinsurance business. However, the reinsurer isn't writing any new business, it's not expected to turn a profit anytime before the existing policies run out in 2019, and most of the cash it's taking in now is pledged to repay notes that will be issued to certain groups of WaMu creditors.
But NewCo will have a few things going for it as it exits bankruptcy and seeks to rebuild a viable business for its shareholders' benefit. Two creditor groups have agreed to endow the company with $75 million in fresh capital, it likely will receive about $10 million from the reinsurance business, and it will have access to a $125 million credit line.
The biggest potential value may lie in the tax losses NewCo expects to create by formally abandoning its worthless stock in Washington Mutual Bank, which was taken over by regulators and sold to JPMorgan Chase in September 2008. Those losses, which can be used to offset future income for tax purposes, are estimated to be around $5.4 billion.
All of this, of course, presumes that WaMu's creditors and shareholders vote to approve the current reorganization plan and federal Bankruptcy Judge Mary Walrath confirms it.
The voting deadline is Thursday; a confirmation hearing is set for a week later. Should everything fall into place, NewCo hopes to emerge from bankruptcy Feb. 29.
Getting to this point has been a long, tortuous process. The various parties to the bankruptcy case -- WaMu itself, Chase, the Federal Deposit Insurance Corp., shareholders and holders of various issues of WaMu debt -- have spent much of the past three and a half years fighting over billions of dollars in assets and accusing each other of thievery, insider trading and other bad behavior.
It's taken two "global settlement agreements" and seven proposed reorganization plans to reach a compromise deal that most (though not all) of the parties involved have agreed to support.
WaMu's senior creditors -- the vendors, pension-plan beneficiaries and various classes of bondholders, who have top priority in bankruptcies -- are slated to receive around $6.25 billion in cash, primarily from tax refunds owed to the old company. Some creditor groups also will get $140 million in notes backed by the existing reinsurance business, though $10 million are expected to be traded for 10 million shares of NewCo stock.
