Washington Mutual-the gamble of the year

6th Mar '10 by wantedman

23 comments 53143 reads

First for everybody to know,this article does not address the conservative investor.This is about a very high risk (short term) investment,where you could end up with either multiplying your money or ending up with Zero.If you are not prepared to take that risk stop reading!

But,this is not about the average bankruptcy speculation,in this case IMO chances are much better than usual.

Here is why :

Washington Mutual (OTC:WAMUQ) formerly the biggest American Savings Bank was bought by JPMorgan Chase in 2008 for 1.9 Bio USD a price which many considered way too low.

I am not going into all the details here,there are many articles out there,which can explain the past much better than i can. The interested reader will find out...

Just as an example an article from the 3rd of April 2009

http://www.prlog.org/10211217-evidence-of-improper-governmental-seizure-exposed-in-the-washington-mutual-wamuq-bank-seizure-case.html

Due to recent actions by the FDIC (Federal Deposit Insurance Corporation) and JPM (JP Morgan Chase), it has become apparent that Washington Mutual Inc. (WMI) will have to fight seemingly endless court battles to get proper compensation for its assets which were illegally seized and virtually given away to JPMorgan Chase (Stock Symbol: JPM).

This interview on Youtube gives you a good overview:

http://www.youtube.com/watch?v=Zx-BNk4QnTY&feature=related

and another one:

http://www.youtube.com/watch?v=IeXtCiU2IeA

Summing up the sentiment among many shareholders (and analysts) is that JPM acted illegally and virtually stole WAMUQ.

Now the story accelerated on Thursday where a hearing should take place.This hearing was postponed to march 12th next week.See this Reuters article for details:

http://www.reuters.com/article/idUSN0424397920100304

WaMu may reach deal soon on $3.7 bln deposit

WILMINGTON, Del., March 4 (Reuters) - Washington Mutual Inc could reach agreement with JPMorgan Chase & Co and a government agency over a disputed $3.7 billion bank deposit in the next week, the bankrupt company's attorney told a court on Thursday.

He said the U.S. Federal Deposit Insurance Corp and JPMorgan requested the added time but Washington Mutual was reluctant, an indication that the company might expect a favorable ruling.

He also said there was "momentum" to the negotiations, and Thursday's hearing was delayed for an hour while the parties held talks in the hallway outside the courtroom.

Bankruptcy Judge Mary Walrath granted the request to postpone the hearing for one week.

So now you should have good general…

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wantedman

15th Mar '10

Wrong there loglorry,

Indeed,this is good news for WAMU shareholders.Here is why:

1.This was not a final settlement,but merely a proposal

2.Certain afflicted parties need to agree (among them the EC and certain bondholders)

Needless to say,they wont do so under these circumstances...

3.JPM now officially agreed,that they took the 4 Bio USD unjustified,which is an admission of guilt.

Read this Bloomberg article for details: (by the way,this article was corrected 3 !!! times-in a first version it did not talk of a proposed settlement-now maybe this was one reason which led to the massive crash of the sp???)

http://www.bloomberg.com/apps/news?pid=conewsstory&tkr=WAMUQ%3AUS&sid=a9AFEXT2785k

WaMu Falls on JPMorgan Settlement on Cash, Tax Refund
By Steven Church

(Update3)

March 12 (Bloomberg) -- Washington Mutual Inc. will collect at least $5.95 billion, less than the $20 billion estimated by shareholders, in a proposed settlement of the bankrupt company’s yearlong battle with federal regulators and JPMorgan Chase & Co.

Shares of Washington Mutual, the former parent of the biggest U.S. bank to fail, fell 47 percent, closing at 20 cents in over-the-counter trading. The shares plunged as much as 76 percent after the accord was announced.

Under terms of the deal, Washington Mutual, known as WaMu, will get $4 billion in deposits currently held by JPMorgan. WaMu, JPMorgan and the Federal Deposit Insurance Corp. will also share two tax refunds expected to be worth about $5.6 billion, said Brian Rosen, a Washington Mutual attorney, in an interview today.

Rosen announced the agreement in U.S. Bankruptcy Court in Wilmington, Delaware, where all three entities had been fighting over the deposits. Shareholders had estimated in court papers that the company could collect $20 billion from the deposits, tax refunds and lawsuits.

The money is being held by JPMorgan, which bought Washington Mutual’s bank for $1.9 billion in September 2008 after it was shut by federal regulators. WaMu no longer has any banking operations and is liquidating its under the supervision of a bankruptcy court.

The deal, which took a year to negotiate, will become “vapor” if a group of bondholders successfully opposes it, Rosen said after the hearing.

Debt Repayment

Rosen said the money coming to Seattle-based WaMu will be used to repay $7 billion in debt, mostly owed to bondholders who support the settlement. That won’t leave enough for shareholders, who typically get nothing when a company they own files bankruptcy.

Another set of bondholders owed money by WaMu’s failed Washington Mutual Bank haven’t agreed to support the deal, Rosen said.

Without the support of the bank bondholders, the entire settlement could collapse, Rosen told U.S. Bankruptcy Judge Mary Walrath. The judge must approve the settlement, which Rosen said will be filed by March 26 with the court as part of the company’s liquidation plan.

The company also plans to settle three lawsuits that pitted it against the FDIC and New York-based JPMorgan. A separate shareholder lawsuit against JPMorgan and the FDIC isn’t included in the settlement, Rosen said.

Washington Mutual preferred shares fell 32 percent to close at $1.50, after earlier plummeting as much as 86 percent.

The bankruptcy case is In re Washington Mutual Inc., 08- 12229, U.S. Bankruptcy Court, District of Delaware (Wilmington). The dispute over the cash is Washington Mutual Inc. v. JPMorgan Chase Bank NA, 09-50934, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Here is the reaction from the EC,which represents shareholders.

Rather interesting that the proposed settlement includes giving 5.4 Mio Visa shares to JPM shares for 50 Mio USD ,when in reality these shares are currently worth 250 Mio USD.Another attempt of plain robbery.

But read for yourself:

http://www.prnewswire.com/news-releases/wamutruthcom--washington-mutual-shareholders-denounce-global-surrender-of-the-company-to-jp-morgan--fdic-87627802.html

WamuTruth.com & Washington Mutual Shareholders Denounce Global Surrender of the Company to JP Morgan & FDIC

HOUSTON, March 14 /PRNewswire/ -- Washington Mutual shareholders (Stock Symbols: WAMUQ, WAHUQ, WAMPQ, WAMKQ) and WamuTruth.com staff were shocked to discover on Friday that Brian Rosen, council for WMI, has agreed to a proposed "settlement" with JP Morgan and the FDIC of all outstanding litigation and claims without consultation or discussion with the Official Equity Committee of Washington Mutual. This unprecedented surrender involves giving away all of the company's rightful assets and claims for a pittance to the detriment of all equity stakeholders in the company. This proposed settlement was clearly done with no regard to the rights of the true owners of the company due to the inexcusable nature of how these negotiations were conducted. If this proposed settlement is approved by the board of directors, their actions should be considered illegitimate by Washington Mutual shareholders and the court as an annual meeting to elect the board has not been held, contrary to the company's bylaws for over two years.

In prepared remarks given to an audience in Houston, TX, WamuTruth Executive Member Sean Fitzgerald said, "Our organization is extremely outraged by the actions of WMI in its global surrender to JP Morgan and the FDIC. It is absolutely absurd that either party should receive Washington Mutual's rightful claims to the $5.6 Billion in tax refunds or $4 Billion in its deposit account. What is even more absurd is that the company is selling JPM 5.4 Million Class B Visa Shares for $50 Million when they are worth over $250 Million. The company, which was solvent through the date of its seizure, has a number of strong legal claims against both the FDIC and JP Morgan, and should pursue these claims in open court. Americans are tired of these backroom deals which benefit Wall Street instead of Main Street."

WamuTruth is publicizing this press release to provide a letter for Washington Mutual shareholders to send to the court to show that we are displeased with the actions of WMI and its board of directors. U.S. Supreme Court Justice Louis Brandeis once said that, "Sunlight is the best disinfectant." Please follow the link provided to print a copy of this letter to send into the court and show your support for the American judicial system and your hopes for justice.

loglorry

8th Mar '10

I've taken a wee punt on this FWIW I think the outcome is really unknowable but there might well be some horse trading that results in shareholders getting back more than the current pink sheet price.

Log

Hi loglorry,

I went in on Thursday for 0.25 USD with a small "gamble position" right now i doubled my money :-)
What really is stunning is the volume today !
After just 1 hour of trading nearly 28 Mio shares traded !

This definitely is thrilling to watch

yes I was reluctant to pay up 53c which is a lot more than than a few days ago but you gotta look at it as a bit of a binary bet. I just bought 2,500 shares so just punt money and I fully expect to loose the lot but the upside is probably 10x from here if things go very well. I don't think chances are good though maybe 1 in 5 of something positive.

The pink sheets are notorious for placing value on stocks that have none! I remember when I bought GM Sub Debt when it went into chapter 11 the common continued to trade and was still valuing GM at tens of millions of dollars even though the stock was worthless. The situation here seems a bit different and there is a slim chance the common might have some value but I doubt a court will rule that way. If it does then I think it will open up a massive can of worms that the current administration would rather not open. That said JPM might just settle somehow perhaps offering some of their own common shares as compensation. It seems unlikely but they still got WaMu for a song anyway so they might come to that conclusion.

Anyway worth a little punt as you say and we'll see what happens.

Log

Log

For everybody interested,here are some realtimelinks:

For the US: (self refreshing)

http://data.cnbc.com/quotes/WAMUQ

Chart realtime:

http://de.advfn.com/p.php?pid=staticchart&s=USOTC%3AWAMUQ&p=0&t=37&vol=1

German Chart Realtime:

https://chart.consors.is-teledata.com/module.chart?LANG=de&ID_NOTATION=1554182&QUALITY=BST&TYPE_CHART=STAIR&TIME_SPAN=1D&SHOW_PREV_CLOSE=1&TYPE_IND3=SST&INDICATORS_COLOR1=000000&INDICATORS_COLOR2=00FF00&INDICATORS_COLOR3=0000FF&TYPE_IND5=VOLUME&ID_TYPE_SIZE=

MrT

Interesting stuff - why did the courts adjourn for a week? Is it to allow them time to find a negotiated solution?

Exactly,the afflicted parties talked for one hour behind closed doors with the judge.
Read the reuters article from above.

Here are the originally words before the court,posted on the yahoo board:

THJMW: Good afternoon.

Rosen: Good afternoon, your honor. Brian Rosen, Weil Gotshal & Manges, on behalf of the debtors.

Your honor we have a few items on the agenda this afternoon. Uh, I would like to make an announcement, uh, as we indicated to the court, uh, before this. Two items that were on this morning's calendar, now this afternoon's calendar, were the FDIC motion for relief from the automatic stay, what we refer to as the 9.5 Motion, and also what we'd hoped for was the court's ruling with respect to Summary Judgement, with respect to the turnover action.

Your honor, I can report that, the parties, specifically JPM, FDIC, and the debtors, have been in dialog over the past few weeks, and that has accelerated over the last few days, to try and resolve the issues that are between the parties in the respective litigation, and there seems to be some momentum associated with that.

As a result, both JPM and the FDIC had asked the debtors to adjourn today's hearing, and the the debtors, initially your honor, were reluctant to do so, and our creditor constituency was equally reluctant to do so.

However, out of an accommodation to both the FDIC and JPMorgan, to allow them to do some additional due diligence, the debtors are agreeable to a one week adjournment of both the 9.5 motion and hopefully a ruling with respect to the Summary Judgement, and we have been able to gain the consent of the creditors committee and our creditor constituencies to that one week adjournment as well.

So I would ask the court at this time to adjourn both of those until next friday. I understand from the court that there may be availability at 11:00AM next friday, and we would be prepared to go forward, and expect to go forward at that time, unless there was a global understanding between the three parties, and we would hope that the court at that time would render a ruling with respect to the Summary Judgement and make a determination with respect to the 9.5 motion.

THJMW: Ok, anybody oppose that continuance request? All right, we will continue it

Here is the audio from the hearing:

http://viewip.net/WMI/Hearing/2010-03-04/20100304_01.mp3

And live twitter for the next hearing (if we dont see a settlement before that date)

http://twitter.com/WaMuAudio

The latest media coverage from today:

http://www.thestreet.com/_yahoo/story/10697718/1/wamu-stock-highest-since-failure.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA

watedman,

Did you work out what level the settlement has to be for Ordinary holders to get anything? There are 1.7Bn ord shares as I recall so at 50c that means there must be at least £650m in the pot. However there are pref shares and maybe sub-bonds before them to be paid so I'm guessing it needs to be several billion. Do you have the number handy?

Log

The prefered shares should get about 3.9 Bio USD first. Whatever is more,would go to the commons.

But keep in mind,that the first hearing which was postponed is about 4 Bio USD, which was Cash in an WMI account at the time of the seizure.
Additional there will be a tax refund of 5.6 Bio USD ! Now both WMI and JPM claim that tax refund belongs to them.
Some people are arguing,because JPM and FDIC acted illegally that compensation and lost interests should also be paid.

Always remember that WMI had 29 Bio USD in CASH or similar liquid assets at the time of the seizure.

You have to substract some debts of aproximately 8 Bio against any payments.

So in case of a settlement or a positive ruling for WMI this could well be the Jack-Pot. IMO the strong run up the last days suggests that hopes are high among shareholders.

Ummm high hopes indeed but I suppose JPM could argue that they were buying at well below book value because they were taking on a lot of risk. Not sure that is true actually but that is surely the argument. I'm not really up to speed on things so I need to do some more reading. It could work out well though and ords might get $3/shr I guess if things go well.

I expect there will be some kind of settlement. It seems in JPMs interests to get it sorted and it isn't much skin off their nose given the bargain they got in the first place.

Log

9th Mar '10

The deeper i dig into this subject, the more it looks like some nasty action from JPM and the FDIC took place.Here is the article of reporter Kirsten Grind from the States,who first discoverd what really happened:

http://www.portfolio.com/industry-news/banking-finance/2009/12/07/why-federal-regulators-closed-washington-mutual/

But if regulators had waited just six business days, WaMu could have been helped by the government’s $700 billion Troubled Asset Relief Program, and by an increase in bank deposit insurance limits to $250,000 from $100,000, a move that helped stop panic withdrawals at all banks.

Remember that JPM acquired WAMU within hours after the seizure,as the only bidder ! The FDIC didnt even wait 1 day,while they could waited 90 days for potential counterbids.

What OTS also didn’t make public, at the time or afterward, were WaMu’s actual liquidity figures or its capital position at the time of the seizure.

WaMu never released them either, because it closed before reporting its third-quarter financial results.

But documents and interviews with former WaMu employees show that regulators closed WaMu even though it had liquidity and capital that were well above the levels at which a bank might normally be threatened with closure.

“With the cash it had, WaMu should never have been seized,” said a senior banking regulator familiar with the matter.

And another one where former Treasury secretary admits that WAMU never really was bankrupt:

http://seattle.bizjournals.com/seattle/stories/2010/02/01/daily48.html

„In WaMu’s case, Cantwell said she tried on several occasions to get answers from former Treasury Secretary Hank Paulson and FDIC Chairman Sheila Bair about how the government was handling WaMu in the frantic days before the bank was closed in September 2008. At one point, she said, after Paulson didn't return her phone calls, she cornered him before a congressional hearing to ask about the bank. After she told him that WaMu had adequate capital and liquitity, he hurriedly answered, “I know all this.” „
Puget Sound Business Journal (Seattle) - by Kirsten Grind

I'm afraid I took a quick profit this morning and ran. I've been trying to get to the bottom of what might be left for the ords but it really is anyones guess I think. I can see WAMU ord holders have a case but if they had not been sold to JPM then another run on the bank looked likely and so one might argued the equity would have been worthless.

I might buy back in again but when these things run up so fast and so far it is maybe prudent to take some profits.

Good luck to holders.

Log

What a thrilling trading day !!!

http://www.thestreet.com/story/10699140/1/wamus-wild-ride.html?puc=_tscrss

WaMu's Wild Ride
By Dan Freed

NEW YORK (TheStreet) -- Shares of Washington Mutual (WAMUQ.PK) weathered a fourth-straight volatile session on Tuesday with dramatic swings in the stock fueled by expectations that a settlement between the bankrupt thrift and JPMorgan Chase(JPM) could be reached by the end of the week.
After big gains on Monday took the stock to its highest levels since WaMu's failure, the Pink Sheets-listed shares opened nearly 30% higher at 70 cents, their peak for the day. By midday, however, they turned all the way around and sunk to a session-low of 34 cents, a swing of more than 50% from the high. They finished at 49 cents, down almost 12% for the day.

Volume of more than 141 million represented the most-active session for WaMu since Sept. 25 2008, when JPMorgan acquired the majority of the company's assets from the Federal Deposit Insurance Corp. For perspective, Tuesday's volume for WaMu was competitive with that of Bank of America(BAC) (163 million) and well beyond trading in General Electric(GE) (82 million) in the same session. Overall, the volume was nearly eight times the issue's trailing three-month daily average of 18 million.

Last week, an attorney for WaMu told the Delaware bankruptcy court that WaMu, JPMorgan and the FDIC were making progress in their negotiations. The next hearing in the case is now scheduled for Friday, suggesting that shareholders are likely find out this week whether they will recover anything from the bankruptcy.

Another hope for shareholders comes from a class action lawsuit, American National Insurance Co. vs. FDIC, which is still making its way through the courts.

--Written by Dan Freed in New York

11th Mar '10

Well I'm back in with a tiny punt just $1000 worth at 37.6c - who knows what tomorrow will bring but worth a bit of a punt I guess.

Log

12th Mar '10

Game over I'm afraid for the common - settlement reached and there won't be anything to speak of in there for the common. I bailed at 15c taking a $500 loss - not woderful but could have been worse. Worth the trade really as the upside was much greater and it might have paid off.

Time to move on methinks.

Log

I may have screwed up here as you point out but this is probably not one for me. It is very hard to see what will happen here and the stock is all over the place. I can't see the news as positive actually and I'm more inclined now to think that (at least in the short term) common holders will get zero.

Let's not forget that the common had traded up massively already. I can see a quiet period now in which it will drift lower.

It was only a small punt for me anyway and I made a bit and then lost a bit (more) on it so I'm not so worried.

Log

Here is the view from an AMERICAN poster named Zargos:

http://tradingtipsnow.com/blog/?p=1743

Unjust Deal: How to purchase a Multi-Billion dollar bank for FREE

by Zagros on March 15, 2010

For 18 months, Weil, Gotshal & Manges LLP (along with other Law firms) has been building a case against JP Morgan/FDIC while managing the Bankruptcy case for Washington Mutual, Inc. For reasons unknown to the equity holders of WMI (WAMUQ), Weil’s litigation ended in a proposed settlement that appears to give WMI 6.5 billion in cash but what’s not immediately recognized is that the 6.5 billion was WMI’s all along and does not require a settlement – these matters only required a bench ruling from the Bankruptcy Judge, the Honorable Mary Walrath.

By all accounts, JP Morgan Chase (JPM) purchased the whole bank assets of Washington Mutual for 1.88 billion in September of 2008. Anyone would agree that 1.88B for a 110 year old organization that had 270 billion on deposit, 29 billion in liquid cash, 2700 banks, 8000 ATM’s, and a credit card company is an unjust deal that deserves scrutiny.

The deal becomes even more unjust when one considers the impact it has to JP Morgan – - the deal creates the nation’s second-largest branch network. A combined network reaching 42% of the U.S. population, with strong positions in attractive markets such as California, Florida, New York, Texas, Arizona, Illinois and Washington. With the assumption of WaMu’s assets, JP Morgan will have $900 billion in deposits, 5,400 branches and 14,000 ATMs in 23 states.

In addition when you closely examine the proposed settlement you’ll see that JP Morgan actually receives monies in the form of 70% percent of a tax return, referred to as tax return 1. That percentage equates to 1.82 B or 2.10 B (depending of the actual returned amount). Yes, it’s shocking but that is the deal that Weil, Gotshal & Manges LLP was able to muster in 18 months – - a deal that did not benefit WMI but gives additional monies to JP Morgan Chase. In fact the JPM’s portion of the tax return basically means that JPM purchased WaMu for nothing, that amount paid to the FDIC and the amount to be received in tax returns is a wash.

For some reason Rosen with Weil, Gotshal & Manges decided it would be a good deal to give JP Morgan the “Class B” Visa shares worth 250 million for the bargain basement price of 50 million, even more confusing is Weil’s negotiation to give JPM the ownership rights of a Wind Farm to JPM for no monetary consideration, speculation puts the value of the wind farm at the 80 million dollar level.

The proposed settlement is being touted in the press as a ‘job well done’ with ‘pats on the back’ for Weil, Gotshal & Manges but I contend that a settlement is not a ‘settlement’ when all you haggled for was what was rightfully yours and would have been given to you without delay by the Honorable Mary Walrath (she was ready to rule in WMI’s favor and would have done so). I see the proposed settlement as a ‘run-around’ of the bankruptcy court’s solvency/insolvency test(s). Furthermore, there is potential that because of the changes to JPM’s indemnity claims against the FDIC — it is possible that the percentage of tax retuns given to the FDIC will end up in JPM’s accounts.

My personal request to the Equity Committee – - do whatever is possible to block this proposed settlement and refuse any further offers – I for one, as a shareholder, want my day in court. In fact, I say start with day JPM’s Lawyer pleaded with the Honorable Mary Walrath, in that plea the lawyer stated (paraphrase): “Your honor, there is no deposit, the management ran the bank into the ground, if there is a deposit of that size, of 4 billion, then the bank would not have been seized.” We now have JPM and FDIC adimitting (in no uncertain terms) there is a deposit.

Another good starting point, a closer read of “Report and Recommendations Pursuant to Section 133 of the Emergency Economic Stabilization Act of 2008: Study on Mark-To-Market Accounting”, specifically page 101, last paragraph:
2. Reported Capital Status for 2008 Failed Banks

* Exhibit III.2 below shows basic descriptive information, including the last reported capital status, for each of the 22 banks that failed as of December 1, 2008.
* As more fully described in the remainder of this section, for most of the failed banks studied, the immediate cause of failure was the inability to become adequately capitalized. For some failed banks, the immediate cause of failure was the inability to meet depositors’ needs. Some failed banks that were closed due to liquidity also had inadequate capital, but others had adequate capital at the time of closure. Most notably, the largest bank to fail, WaMu, was well-capitalized according to the applicable capital adequacy standards at the time of failure.

Finally, I’d request that the EC revisit the original litigation claims from Quinn Emanuel Urquhart Oliver & Hedges, LLP – those claims apparently were not used in the negotiation process.
Themes: FDIC, Washington Mutual, JP Morgan Stocks: WAMUQ.PK, JPM

Washington Mutual-the gamble of the year

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Wantedman

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