Washington Mutual Inc sues US bank regulator for over $13 billion

23 March 2009

Washington Mutual Inc., (WMI) the Seattle-based holding company of Washington Mutual Bank (WaMu) has sued the Federal Deposit Insurance Corp. (FDIC) for over $13 billion for seizing the bank and selling it off at an undervalued price.

Filing the lawsuit on Friday in the US District Court for the District of Columbia, WMI has accused the FDIC for seizing and selling its subsidiary to JPMorgan Chase for an undervalued price of around $1.9 billion last year. (See: Federal Reserve seizes WaMu; auctions it to JPMorgan for $1.9 billion)

WMI states in its lawsuit that instead of seizing WaMu, had the assets ''been liquidated in a prudent and reasonable manner," the assets would have fetched a far better price, thereby getting more money to its creditors and itself, than the $1.9 billion paid by JPMorgan to the FDIC.

WMI is now seeking through its lawsuit, $6.5 billion of capital contributions that it supposed to have made to WaMu from December 2007 till it was seized by the FDIC in September 2008, $3 billion of tax refunds, $177.1 million damages related to unpaid loans made to the banking unit and $4 billion of trust preferred securities.

The suit also alleges that the FDIC or the Office of Thrift Supervision lured WMI to pump fresh capital into the bank "at a time when such agencies knew or should have known that (seizure of the bank) was imminent."

WMI's attorneys claim that prior to seeking redress from the court, WMI had submitted claims to the FDIC, which was replied by a "cryptic disallowance," although it is obliged by law to answer the claim and give reasons for the denial.