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4 Ways Washington Mutual's Bankruptcy Still Matters

Tickers in this article: JPM

NEW YORK ( TheStreet) -- Washington Mutual (WAMUQ.PK) 's three and a half year-old bankruptcy case drew toward a close on Friday, though issues it raised will linger for some time.

U.S. Bankruptcy Court Judge Mary Walrath approved the plan, which various stakeholders must vote to accept or reject before a March 7 deadline.

Washington Mutual was seized by regulators Sept. 25, 2008, with the bulk of its banking operations being sold to JPMorgan Chase (JPM) .

The holding company, however, went into Chapter 11, making it the largest bank failure in history and the second-largest bankruptcy after Lehman Brothers .

Nonetheless, while the public may have forgotten about WaMu, its resolution, such as it was, is likely to continue to impact the financial services industry for years to come. Here are four big questions that remain unresolved following WaMu's bankruptcy.

1. Winding down big banks looks messier than ever.

Think WaMu's three and a half year bankruptcy fight was a mess? At least the parts of WaMu that went into bankruptcy are close to being settled.

Still unresolved, however, is roughly $6 billion in liabilities that are in a kind of no man's land. Owners of those liabilities (mostly unsecured bonds) could not seek repayment either from JPMorgan or through the Chapter 11 process.

Pointing to this unresolved $6 billion, John Douglas, a partner at Davis Polk and former FDIC general counsel, describes WaMu's unwinding as "a long-running disaster."

"It makes you wonder how orderly liquidation is supposed to work in the context of a complicated institution, because Washington Mutual just wasn't that complicated," he says. "It's basically a retail bank highly concentrated in mortgage loans."

Douglas says it is up to the FDIC to determine "whether and when its going to distribute any money" to holders of the unresolved $6 billion in WaMu obligations, but the regulator has been silent on the issue.

The owners of these obligations could not be identified. Douglas says they originally were mostly large institutions, including Morgan Stanley (MS) , The Bank of Ireland (IRE) , and HBOS, now part of Lloyd's Banking Group , though many of the liabilities have since been bought by hedge funds.

FDIC spokesmen did not respond to an email message sent to them on Saturday asking about the unresolved $6 billion.

Part of the FDIC's reason for not yet distributing any of the funds may be that it doesn't know when it is safe to do so, since claims may still be made on it. For example, Deutsche Bank has made a $10 billion claim against Washington Mutual, arguing mortgages WaMu underwrote and sold to the German bank were fraudulent and must be repurchased. Attorneys for the FDIC and JPMorgan have been arguing over which institution would have to pay Deutsche Bank if it proves its claim.