WILMINGTON, Del. (TheStreet) -- Washington Mutual (WAMUQ.PK) shareholders who had been clinging on until the bitter end were delivered a devastating blow on Monday: Even an impartial third-party examiner "sypmathetic" to their cause shot them down.
Joshua Hochberg, a court-appointed attorney who examined the outcome of WaMu's bankruptcy proceedings, met with equity representatives several times and held discussions with them as recently as a few weeks ago. In a 369-page report released on Monday, Hochberg said he was "sympathetic" to the scores of people who lost "lifetimes worth of savings" in WaMu stock.
However, he doesn't think there's any chance they'll recover those funds. In fact, he thinks they should just stop trying.
"Simply put, there is no clear litigation path which would result in substantial recoveries beyond those to be paid to the debtors under the settlement agreement," Hochberg, a partner at McKenna, Long & Aldridge, writes. "Indeed, a possible result if the settlement fails is that the debtors will end up with the deposit accounts and nothing more. The amounts required to reach common equity are simply too large, and the likely recovery too speculative, to justify rejecting the proposed settlement."
The settlement to which he's referring was announced in March and is still awaiting approval by U.S. Bankruptcy Judge Mary F. Walrath. It would distribute about $7 billion to creditors, then liquidate most of Washington Mutual's remaining assets, except for a reinsurance company that would exit bankruptcy in tact.
Equity holders would receive nothing, despite pleas to receive some cold, hard cash since September 2008.
On Tuesday, Washington Mutual stock - which still trades on the pink sheets, awaiting the outcome of the bankruptcy proceedings - was down 62% at 6.2 cents. The stock had reached a recent high above 50 cents in March as the litigation battles were playing out. WaMu's acquirer, JPMorgan Chase (JPM_), was down 0.8% at $37.13 in recent trading.
Washington Mutual stock investors have long been bitter about the deal, in which JPMorgan got substantially all of the failed bank's assets for a song. But the $1.9 billion price tag also reflected the difficulties JPMorgan is facing in working through WaMu's troubled mortgage portfolio.
"In the end, JPMC was the only potential bidder willing to absorb all of WMB's toxic loan pools without government guarantees," Hochberg noted in his report.
Additionally, WaMu investors felt the Federal Deposit Insurance Corp., which oversaw WaMu's failure, as well as other government entities, like the Office of Thrift Supervision, had left them in the dust. But while Hochberg paid special attention to equity investors concerns - devoting "significant time and effort" to their "analyses, grievances, and suspicions," including the examination of "several PowerPoint decks" - he doesn't see any reason for them to devote more time to longstanding court battles.
Hochberg concludes that there's simply not enough value left in the Washington Mutual franchise to cover what everyone thinks they deserve. With equity at the bottom of the totem pole, and higher stakeholders taking cuts to their shares, WaMu stock investors are the least likely to get anything. Additionally, there are "significant legal impediments" to pursuing litigation against the FDIC or JPMorgan that wouldn't make it worth their time, he finds.
"Although the examiner is sympathetic to equity's views, the examiner finds no remedy that will enable the debtors to obtain sufficient assets for a distribution to shareholders," Hochberg says. "It is highly unlikely that the OTS and FDIC decisions to seize WMB and sell it to JPMC can be successfully challenged. In any event, it appears that their decisions were reasonable under the circumstances."
In other words, it might be time for WaMu stock investors to give up the ghost of equity value that no longer appears to exist.
http://www.thestreet.com/_yahoo/story/10908542/1/...REE&cm_ite=NA
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