Washington Mutual holding company sues FDIC

Washington Mutual Inc., the holding company for the Seattle-based savings and loan that became the nation's largest bank failure, has sued federal regulators for billions of dollars.

The lawsuit, filed Friday in federal court in Washington, D.C., asserts that the Federal Deposit Insurance Corp. (FDIC) sold the company's banking subsidiary, Washington Mutual Bank (WMB) for too little to JPMorgan Chase.

The banking subsidiary was seized in September by the FDIC after Washington Mutual's capital suffered heavy mortgage losses and an outflow of deposits.

The lawsuit says that if the bank's assets had "been liquidated in a prudent and reasonable manner" instead of being seized by the FDIC, they would have been worth far more than the $1.9 billion that JPMorgan paid to the regulatory agency.

The holding company, WMI, is now operating under Chapter 11 protection. Some of its other claims in the suit rely on bankruptcy law to seek the undoing of transactions that were carried out before it filed for Chapter 11.

For instance, the suit says WMI contributed $6.5 billion in capital to the banking subsidiary in 2007 and 2008, although one or both of the companies "may have been insolvent at the time." If so, says the suit, "WMI did not receive any value in exchange for the capital contributions" and is entitled to have the transfers unwound.

The suit also asserts that the FDIC or the Office of Thrift Supervision, the direct regulator of savings and loans such as Washington Mutual Bank, induced WMI to infuse new capital into the bank "at a time when such agencies knew or should have known that (seizure of the bank) was imminent."

WMI's suit says that when it submitted its claims to the FDIC before going to court, it received only a "cryptic disallowance." It asserts the agency is obligated by law to address the claims and explain why it is denying them.