Washington Mutual Purchased by J.P.Morgan Chase

[ChrisC]

Quote:

Originally Posted by Canadian Grunt Actually, the FDIC doesn't own the assets. It insures the deposits and secures the bank to ensure the stability of the banking system, while providing the liquidity for deposits. Securities and deposits are separate issues. From what I can tell JP Morgan bought the WAMU outlets and took over the deposits from the FDIC. I expect the bad debt portion of the assets will be liquidated on the market or absorbed by the Fed. We will have to see how this deal shakes out as more details become evident.

Actually, the FDIC did own both the assets and liabilities of WAMU when it was closed and when the FDIC was appointed as Receiver of WAMU. It might have owned the assets and liabilities for a nano-second. The FDIC then sold substantially all the assets (including the deposit franchise) and all the deposit liabilities (both insured and uninsured) of WAMU to JP Morgan, which paid $1.9 billion to the FDIC for that.

In the highly arcane trade of these transactions, this is known as a "whole bank" transaction because, except for shareholders and some general creditors, the "whole bank" of the failing institution is transferred to another bank.

The $1.9 billion will be used to pay administrative expenses of the FDIC as receiver, general creditors of WAMU, and lastly shareholders of WAMU if anything remains.

[al_bundy]

Quote:

Originally Posted by LOL! And all this appears to have not affected the stock market very much. Just a normal day today ... haven't even given up the gains of yesterday.

volume is extremely low because everyone is waiting on what happens with the bailout

volume on the nasdaq is around 360,000,000 shares so far. this time of year it should be around 1,000,000,000 on an average day and around 2,000,000,000 for the entire day

[ziggy29]

Quote:

Originally Posted by al_bundy volume is extremely low because everyone is waiting on what happens with the bailout

I think so. If no deal is imminent by 3 PM Eastern Time today, watch the free-fall...

[al_bundy]

yep

i bought 2 ETF's a few days ago when it looked like the bailout was going to happen. sold them 8am this morning for a small 5% loss.

if there is no deal very few will want to hold stock into the weekend when anything can happen

[Canadian Grunt]

Quote:

Originally Posted by ChrisC Actually, the FDIC did own both the assets and liabilities of WAMU when it was closed and when the FDIC was appointed as Receiver of WAMU. It might have owned the assets and liabilities for a nano-second. The FDIC then sold substantially all the assets (including the deposit franchise) and all the deposit liabilities (both insured and uninsured) of WAMU to JP Morgan, which paid $1.9 billion to the FDIC for that. In the highly arcane trade of these transactions, this is known as a "whole bank" transaction because, except for shareholders and some general creditors, the "whole bank" of the failing institution is transferred to another bank. The $1.9 billion will be used to pay administrative expenses of the FDIC as receiver, general creditors of WAMU, and lastly shareholders of WAMU if anything remains.

Not all the assets. I expect the really bad debt will be cleaved from the assets and assumed by the Fed. There is more to this than is implied. No way did JP Morgan take on the worst of the bad debt as the credit crises is still not over.


http://www.nytimes.com/2008/09/26/bu...26wamu.html?hp

[ziggy29]

Quote:

Originally Posted by Canadian Grunt Not all the assets. I expect the really bad debt will be cleaved from the assets and assumed by the Fed.

I think JPM got some assurances that when and if this 'bailout' goes through, they will get relief from many of the toxic loans that dragged WM under.

I don't see the government convincing JPM to make this deal otherwise. They're not going to pay $1.9 billion for something with a negative net worth.

[IBWino]

Looks like the new WaMu CEO may walk away with almost $20 million after being on the job for only 17 days. I'd really like to learn how to negotiate contracts like that.:confused:

[ziggy29]

Quote:

Originally Posted by IBWino Looks like the new WaMu CEO may walk away with almost $20 million after being on the job for only 17 days. I'd really like to learn how to negotiate contracts like that.:confused:

If they can afford stupid compensation packages like this, then they don't need any bailout money.

[ChrisC]

Quote:

Originally Posted by Canadian Grunt Not all the assets. I expect the really bad debt will be cleaved from the assets and assumed by the Fed. There is more to this than is implied. No way did JP Morgan take on the worst of the bad debt as the credit crises is still not over. http://www.nytimes.com/2008/09/26/bu...26wamu.html?hp

I don't know where you get your information. The Chairman of the FDIC went on CNBC this morning and said it was a "whole bank" transaction. Here's the FDIC press release. FDIC: Press Releases - PR-85-2008 9/25/2008. There's nothing in the FDIC press release or in the NY Times article that suggests JP Morgan left any "bad debt" with the FDIC, as receiver. And in fact all qualified financial contracts were also assumed by JP Morgan Chase, where most of the "exotic" derivatives would be lodged.

If you had ever done anything remotely similar to one of these deals, you would know that unless you had months and months of time, with an army of forensic accountants and asset specialists, you would never be able to do enough due diligence in a short time period to cherry pick assets. And if the asset classes were so bad, JP Morgan would not have paid a $1.9 billion premium.

By the way, the Fed doesn't assume "bad debt" in these transactions. If any bad debt wasn't transferred, it would remain with the FDIC as receiver.

[guest]

Quote:

Originally Posted by IBWino Looks like the new WaMu CEO may walk away with almost $20 million after being on the job for only 17 days. I'd really like to learn how to negotiate contracts like that.:confused:

I think he was CEO for 18 years...BUT still...why not fire the guy the same way I would get fired if I screwed up my job.....unemployment at best!

[Gotadimple]

Quote:

Originally Posted by guest I think he was CEO for 18 years...BUT still...why not fire the guy the same way I would get fired if I screwed up my job.....unemployment at best!

No, Kerry Killenger was fired on 9/7. The new CEO (Allen Fishman) was immediately hired and negotiated a nice signing bonus and a bonus if the bank failed, or if he was able to reconstruct the debt and it turned out ok.

One of those win-win-win deals because the FDIC and Office of Thrift Supervision finally got through to the board that they were in big trouble.

-- Rita

[ziggy29]

Quote:

Originally Posted by Gotadimple No, Kerry Killenger was fired on 9/7. The new CEO (Allen Fishman) was immediately hired and negotiated a nice signing bonus and a bonus if the bank failed, or if he was able to reconstruct the debt and it turned out ok.

And as a result, he "earned" almost as much money in *one day* as I've made in a 21-year professional career.

[Canadian Grunt]

Quote:

Originally Posted by ChrisC I don't know where you get your information. The Chairman of the FDIC went on CNBC this morning and said it was a "whole bank" transaction. Here's the FDIC press release. FDIC: Press Releases - PR-85-2008 9/25/2008. There's nothing in the FDIC press release or in the NY Times article that suggests JP Morgan left any "bad debt" with the FDIC, as receiver. And in fact all qualified financial contracts were also assumed by JP Morgan Chase, where most of the "exotic" derivatives would be lodged. If you had ever done anything remotely similar to one of these deals, you would know that unless you had months and months of time, with an army of forensic accountants and asset specialists, you would never be able to do enough due diligence in a short time period to cherry pick assets. And if the asset classes were so bad, JP Morgan would not have paid a $1.9 billion premium. By the way, the Fed doesn't assume "bad debt" in these transactions. If any bad debt wasn't transferred, it would remain with the FDIC as receiver.

"JPMorgan Chase acquired the assets, assumed the qualified financial contracts and made a payment of $1.9 billion. Claims by equity, subordinated and senior debt holders were not acquired."

Please read the statement above again carefully, I took it from your link.

Secondly, JP Morgan acquired Washington Mutual. It was their subsidiary that incurred much of the bad debt. You need to read between the lines on media reports.

I have some experience in media deception and public spin. Taxpayers wouldn't want to know exactly what is happening with the banking system would they

[ChrisC]

Quote:

Originally Posted by Canadian Grunt "JPMorgan Chase acquired the assets, assumed the qualified financial contracts and made a payment of $1.9 billion. Claims by equity, subordinated and senior debt holders were not acquired." Please read the statement above again carefully, I took it from your link. Secondly, JP Morgan acquired Washington Mutual. It was their subsidiary that incurred much of the bad debt. You need to read between the lines on media reports. I have some experience in media deception and public spin. Taxpayers wouldn't want to know exactly what is happening with the banking system would they

I have some experience in these deals. And for depository institutions, senior debt and subordinated debt holders are unsecured general creditors, which are also in the category of general unsecured liabilities on the balance sheet of the bank. Not all "liabilities" of WaMu were acquired by JP Morgan, but all deposit liabilities were acquired if you read the release carefully. If you had some background about the intervention or liquidation of an entity, whether state or federal bankruptcy or receivership proceedings, you would know that "equity" holders (e.g. common stock owners) become general creditors holding a general liability claim against the bankruptcy or receivership estate. Thus, it would be correct to lump such equity holders in the category of subordinated and senior debt holders, which frequently have an equity piece to them.

The press release again says that "the assets" were acquired. This would include the "toxic assets" which might include mortgage backed securities, some of which you might have inadvertently characterized as "bad debt."

I don't profess to know anything about whether the "toxic assets" or "bad debt" as you suggested are in a subsidiary or the parent holding company. You made the claim that some assets from WaMu were not acquired, when the press release belies your claim.

Respectfully, you were not reading or understanding exactly what the press release was saying.

[guest]

Quote:

Originally Posted by Gotadimple No, Kerry Killenger was fired on 9/7. The new CEO (Allen Fishman) was immediately hired and negotiated a nice signing bonus and a bonus if the bank failed, or if he was able to reconstruct the debt and it turned out ok. One of those win-win-win deals because the FDIC and Office of Thrift Supervision finally got through to the board that they were in big trouble. -- Rita

my bad......now I'm for hanging/shooting/stringing up/.....or asking to be adopted

[harley]

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Originally Posted by ziggy29 I think so. If no deal is imminent by 3 PM Eastern Time today, watch the free-fall...

Hmmm...it appears to have free-falled (free-fallen?) up - 1.1% Dow, .34% S&P. Down a touch .15% on the Nasdaq, and that was because of RIM, not banking.

I really think the markets will doodle around a bit while an intelligent, non-knee jerk plan is worked out. We basically haven't moved significantly overall in the entire month of Sept. Down <2% in a month is an every day occurrence. Take a breath, do it right (or less wrong), and things will work out. Signed, Pollyanna.

[Canadian Grunt]

Quote:

Originally Posted by ChrisC I have some experience in these deals. And for depository institutions, senior debt and subordinated debt holders are unsecured general creditors, which are also in the category of general unsecured liabilities on the balance sheet of the bank. Not all "liabilities" of WaMu were acquired by JP Morgan, but all deposit liabilities were acquired if you read the release carefully. If you had some background about the intervention or liquidation of an entity, whether state or federal bankruptcy or receivership proceedings, you would know that "equity" holders (e.g. common stock owners) become general creditors holding a general liability claim against the bankruptcy or receivership estate. Thus, it would be correct to lump such equity holders in the category of subordinated and senior debt holders, which frequently have an equity piece to them. The press release again says that "the assets" were acquired. This would include the "toxic assets" which might include mortgage backed securities, some of which you might have inadvertently characterized as "bad debt." I don't profess to know anything about whether the "toxic assets" or "bad debt" as you suggested are in a subsidiary or the parent holding company. You made the claim that some assets from WaMu were not acquired, when the press release belies your claim. Respectfully, you were not reading or understanding exactly what the press release was saying.

To paraphrase the release one more time, "claims of equity, subordinated debt, and senior debt holders were NOT acquired." This means there were some assets that were not transferred to JP Morgan. These claims include the bad debt and are part of WAMU's subsidiary.

JP Morgan got the outlets and deposits. They did NOT assume all the liabilities of WAMU. The Fed will absorb the worst of the bad debt outstanding on WAMU’s bad mortgages.

It is ludicrous to think JP Morgan would be stupid enough to make the deal without cleaving the worst of the bad debt. It was that very debt that sank WAMU, if they accepted the bad debt onto their balance sheet without assurances from the government they would go under also.

[ChrisC]

Quote:

Originally Posted by Canadian Grunt To paraphrase the release one more time, "claims of equity, subordinated debt, and senior debt holders were NOT acquired." This means there were some assets that were not transferred to JP Morgan. These claims include the bad debt and are part of WAMU's subsidiary. JP Morgan got the outlets and deposits. They did NOT assume all the liabilities of WAMU. The Fed will absorb the worst of the bad debt outstanding on WAMU’s bad mortgages. It is ludicrous to think JP Morgan would be stupid enough to make the deal without cleaving the worst of the bad debt. It was that very debt that sank WAMU, if they accepted the bad debt onto their balance sheet without assurances from the government they would go under also.

I repeat you simply don't understand things. This was not a "good bank, bad bank" transaction, where bad bank assets stay with the FDIC! It was a "whole bank" transaction. I'm sorry but you're clueless about the nature of these transactions and it really shows. You're confusing the liability side with the asset side of a bank's balance sheet! And you're second guessing the valuation of assets.

Now you'll tell me that the open bank assistance deal the FDIC just struck with Citibank over the acquisition of Wachovia also had a bad bank feature to it.

It's really pointless to discuss these things with someone who clings to an understanding of transactions which is frankly confusing and not correct.

[Canadian Grunt]

Quote:

Originally Posted by ChrisC I repeat you simply don't understand things. This was not a "good bank, bad bank" transaction, where bad bank assets stay with the FDIC! It was a "whole bank" transaction. I'm sorry but you're clueless about the nature of these transactions and it really shows. You're confusing the liability side with the asset side of a bank's balance sheet! And you're second guessing the valuation of assets. Now you'll tell me that the open bank assistance deal the FDIC just struck with Citibank over the acquisition of Wachovia also had a bad bank feature to it. It's really pointless to discuss these things with someone who clings to an understanding of transactions which is frankly confusing and not correct.

Yes, I don't understand....The liabilities you talk about used to be assets. The mortgages! They only became liabilities when housing prices declined. My original claim was this was not a whole bank transaction. I think I proved the point. End of argument.

I won't bother with the personal insults; they are the mark of an inferior position and a closed mind.

[ChrisC]

Quote:

Originally Posted by Canadian Grunt Yes, I don't understand....The liabilities you talk about used to be assets. The mortgages! They only became liabilities when housing prices declined. My original claim was this was not a whole bank transaction. I think I proved the point. End of argument. I won't bother with the personal insults; they are the mark of an inferior position and a closed mind.

And you're original claim was wrong, wrong, wrong -- I said it three times and you keep on insisting you're right, even after painfully explaining the first or second time how wrong you were. It's kind of exasperating to me, especially when you make assumptions that are made out of thin air.

In what world do you live in where assets become liabilities on a bank's balance sheet? A bank makes a loan -- that's an asset on the bank's balance sheet. If the loan becomes delinquent or "charged-off", that's still an asset that has been written-down or marked-down. Mortgage backed securities are assets on the balance sheet of the bank. On the other hand, equity claims and bondholders of debt issued by WaMu are liabilities. These liabilities were not acquired or assumed by JP Morgan. All of the "deposit liabilities" were acquired. And the assets were acquired as well -- no assets were left behind according to the press release.

The only thing you proved is that you stubbornly cling to an understanding that makes no sense and are prone to engage in ad homenim.