updated 3/12/2010 7:03:15 PM ET 2010-03-13T00:03:15

Washington Mutual Inc. has tentatively resolved disputes with JPMorgan Chase & Co. and the Federal Deposit Insurance Corp. over some $4 billion at issue in the bank holding company's Chapter 11 bankruptcy, a WaMu attorney said Friday.

The FDIC seized Washington Mutual's flagship bank in 2008 and sold its assets to JPMorgan for $1.9 billion. The sale resulted in the two banking companies and the government agency trading lawsuits over roughly $4 billion in disputed deposit accounts.

WaMu attorney Brian Rosen told U.S. Bankruptcy Judge Mary Walrath on Friday that JPMorgan has agreed to turn over the money to Washington Mutual after deducting $172 million as its share of tax refunds received.

In return, JPMorgan will get 70 percent of expected tax refunds resulting from WaMu's prior operating losses that are valued at about $3 billion, with Washington Mutual getting 30 percent.

WaMu also will get about 40 percent of a second round of operating-loss tax refunds valued at about $2.6 billion, with roughly 60 percent going to the FDIC.

"WMI is confident that this agreement will provide substantial recoveries for the company's creditors, and that it is consistent with WMI's efforts over the last 18 months to maximize the value of its bankruptcy estate," the company said in a prepared statement. "WMI is also pleased that this agreement vindicates the positions it took in court, as the company believes that its court positions created the pressure necessary to move this agreement forward."

Shares of WaMu closed down 18 cents, or 47 percent, at 19 cents in over-the-counter trading.

Rosen said documentation of the settlement will be submitted to the court and will be included in a reorganization plan to be filed by March 26, followed by a disclosure statement hearing in early May.

‘Three-way understanding’
The settlement negated the need for a hearing Friday on WaMu's request for a judgment that would have forced JPMorgan to surrender the deposits, and on the FDIC's request that it be allowed to hold the funds pending resolution of related lawsuits.

"I am happy to report that we have a three-way understanding," Rosen told Walrath, adding that the agreement is subject to approval by the governing boards of the FDIC and the two banking companies.

Rosen said the deal, which could result in the dismissal of three lawsuits pitting WaMu, JPMorgan and the FDIC against one another, also is contingent on the resolution of claims from holders of billions of dollars of bonds issued by Washington Mutual Bank, or WMB. Without the bondholders' approval, or the disallowance of their claims in their entirety, the settlement could turn to "vapor," Rosen said outside court.

Evan Flaschen, an attorney representing institutional investors who hold about $2 billion in WMB notes and were not part of the settlement negotiations, expressed disappointment at the announcement.

Flaschen said the FDIC appeared to be more interested in getting released from WMI's claims that it improperly sold WaMu assets to JPMorgan at a "fire sale" price after the largest bank failure in U.S. history, rather than exercising its fiduciary duties to the bank's creditors.

"It appears that the FDIC is only looking out for its own interests and does not care for the creditors in the bank receivership it is supposed to be protecting," he said.

"It's pretty disappointing that creditors of a bank are treated worse than creditors of a holding company," Flaschen added, referring to the fact that holders of WMI bonds are expected to recover on their claims.

Settlement terms
David Barr, a spokesman for the FDIC, declined to comment on the settlement.

A spokesman for JPMorgan did not immediately return a message seeking comment.

Flaschen said the bank bondholders would redouble efforts to pressure Congress to force the FDIC to protect their interests, and that they were exploring their legal options.

"This just hit us over the head, and now we're thinking about how to deal with it," he said.

In addition to turning over the $4 billion in deposits, JPMorgan has agreed to purchase Visa shares from WMI for $50 million, Rosen said. WMI also will take claim to $55 million paid into the bankruptcy court registry by the federal government as part of a judgment in a lawsuit filed by its American Savings Bank affiliate.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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