WaMu's reorganisation plan rejected

A bankruptcy judge rejected Washington Mutual Inc's reorganisation plan on Friday but said the company's $10 billion settlement with J.P. Morgan Chase & Co and a bank regulator was fair and reasonable. The judge found that some legal releases from liability in the reorganisation plan were too broad, among other issues.
"The court finds that the debtors' plan is not confirmable unless the deficiencies explained herein are corrected," Delaware judge Mary Walrath wrote in an 109-page opinion. Washington Mutual welcomed approval of the settlement and said it expected to modify the reorganisation plan and seek approval as soon as it can.
The settlement ends most of the legal battles that began when the company filed for Chapter 11 in September 2008, the day after regulators seized its WaMu savings and loan in the biggest bank failure in US history. The Seattle-based bank was immediately sold by the FDIC to J.P. Morgan for $1.88 billion.
The settlement divides disputed cash and tax refunds and provides most of the $7 billion that Washington Mutual plans to distribute to hedge funds and other bondholders under its plan of reorganisation. Most creditors will be repaid in full. J.P. Morgan will receive about $2.5 billion in tax refunds under the deal, and the FDIC will get about $800 million.
The reorganisation is likely to wipe out the common stock, and shareholders argued the settlement should be rejected because it ended potential lawsuits against J.P. Morgan and the Federal Deposit Insurance Corp with little in return. They said that Washington Mutual could end up with $33 billion if it scored major legal victories and if its assets were more fairly valued.
The company welcomed Walrath's rulings. "WMI is also pleased that the court suggested that the plan of reorganisation is confirmable subject to limited modifications," Washington Mutual Inc, or WMI, said in a statement. J.P. Morgan and the FDIC declined to comment. Justin Nelson, an attorney with Susman Godfrey which represents the official equity committee, said "we are gratified the court denied confirmation and we're evaluating the opinion and our options going forward."