By Jacqueline Palank and Patrick Fitzgerald
MF Global Inc. next week will ask a federal judge to approve a
settlement under which J.P. Morgan Chase Bank has agreed to
reimburse $100 million to the failed brokerage's customers.
As part of the settlement, which was announced in March, J.P.
Morgan also agreed to release the liens locking up $417 million in
funds it had previously returned to MF Global.
J.P. Morgan faced litigation related to its role as the agent
for MF Global's lenders as well as one of the brokerage's main
clearing banks. The bank was also home to many of the segregated
accounts of MF Global's customers, which were notably found to be
missing customer funds upon the brokerage's collapse in 2011.
Trustee James W. Giddens, who is overseeing MF Global's
liquidation and returning money to the brokerage's customers, said
the settlement will avoid "years of costly litigation ... with an
uncertain outcome."
U.S. Bankruptcy Judge Martin Glenn and U.S. District Judge
Victor Marrero must each approve the settlement, which they'll
consider Wednesday at a joint hearing.
Upon approval, J.P. Morgan would hand the $100 million to Mr.
Giddens, who may then distribute it to customers. The bank would
pay another $7.5 million to cover the legal fees of MF Global's
former commodities customers, who have also signed onto the
settlement.
A deal with the Commodity Futures Trading Commission announced
Thursday allows Mr. Giddens to pay all of the brokerage's customers
in full.
Mr. Giddens is winding down MF Global for the benefit of
customers under the authority of the Securities Investor Protection
Act, which governs the liquidation of failed brokerage firms. MF
Global's parent company, MF Global Holdings Ltd., liquidated under
Chapter 11 of the Bankruptcy Code.
Also next week, Capitol Bancorp Ltd. (CBCRQ), which previously
saw state regulators seize some of its bank subsidiaries, will seek
court approval to put its remaining banks on the auction block.
The Detroit bankruptcy court on Tuesday will consider Capitol's
auction proposal. Among the banks that Capitol, a Michigan-based
community-bank holding company, is looking to sell are Michigan
Commerce Bank and Bank of Las Vegas.
It's unlikely Capitol's creditors will see anything from those
sales. Under the company's new Chapter 11 plan, they can't recover
sale proceeds without the approval of the Federal Deposit Insurance
Corp.
The bank regulator said the recent closures of Capitol
subsidiaries may cost its insurance fund more than $34 million. The
FDIC, the receiver for failed banks, could also go after Capitol's
remaining subsidiaries under "cross-guaranties" for the losses. An
FDIC cross-guaranty claim is generally senior to the claims of the
holding company and its affiliates.
The proposed sale came on the heels of state regulators' move in
May to seize and close three of Capitol Bancorp's other bank
subsidiaries: Georgia's Sunrise Bank, Pisgah Community Bank in
North Carolina and Central Arizona Bank. A fourth was spared only
when the holding company obtained a temporary injunction blocking
the closure.
Capitol filed for bankruptcy protection last August. It recently
agreed to give creditors more time to review its latest Chapter 11
plan, which describes how it will pay its creditors. The holding
company overhauled the plan once it decided to sell its remaining
banks rather than reorganize around them.
Write to Jacqueline Palank at
jacqueline.palank@dowjones.com.
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