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Originally published October 21, 2008 at 12:00 AM | Page modified October 21, 2008 at 12:20 AM

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WaMu, FDIC may clash over $4.4B prize

Washington Mutual Inc., the bankrupt former parent of the biggest U.S. bank to fail, may be forced to fight the Federal Deposit Insurance...

Washington Mutual Inc., the bankrupt former parent of the biggest U.S. bank to fail, may be forced to fight the Federal Deposit Insurance Corp. for ownership of $4.4 billion in cash.

The FDIC said in court papers filed Monday it may claim part of the cash because it is the government agency responsible for selling WaMu's banking subsidiaries last month to JPMorgan Chase after regulators seized the units.

Bankruptcy attorneys watching the case say the $4.4 billion is likely to become a prize fought over by competing bondholders owed billions by Seattle-based WaMu and its former units.

WaMu filed for bankruptcy Sept. 26, the day after it was seized by regulators and sold to JPMorgan for $1.9 billion.

JPMorgan, the FDIC and WaMu are working on a pact that would allow the bankrupt company to withdraw the money, currently held by JPMorgan, WaMu attorney Marcia Goldstein said in court Monday.

That move is opposed by noteholders of Washington Mutual Bank, who claimed in court papers the withdrawal would be unfair without forcing WaMu to prove it owns the cash.

"No bank would ever let someone walk up to the teller window and withdraw even one dollar from an account without confirming that the account was actually established and that the account actually belonged to the customer," the noteholders said.

U.S. Bankruptcy Judge Mary F. Walrath in Wilmington, Del., scheduled a hearing for next Monday to decide whether to approve the proposed agreement to let Washington Mutual withdraw the money.

Bondholders and other creditors for WaMu are losing money every day the cash sits on deposit with JPMorgan because it is not earning any interest, attorney Thomas Lauria said in court.

"We're at almost a month, and we still can't get the funds moved," Lauria said. "There is harm to the estate and we need to get this issue cleared away."

Copyright © 2008 The Seattle Times Company

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