Funny Money Buys Washington
Mutual, or how to buy a bank without paying out of your pocket.
Decline of WaMu
In December of 2007 WaMu reorganized it home-loan division, closing 160 of its 336 office, and reducing 2,600 employees
(22% of staff thereat). In April of 2008 WaMu announced an S$7 billion
infusion of new capital by new outside investors led by TPG Capital. In addition
WaMu found institutional holders who agreed to buy an additional $5 worth of newly issued stock. In O8 there were there were 3 different CEOs. By mid-September
2008 WaMu shares were going for as low as $2.00, a year early the shares were going for $30.
In 2008 about ¼ of funds with WaMu were with drawn, including a run of $16.7 billion in the ten day prior to seizure
by the FDIC on September 25, 2008.
What a deal for $1.9 billion:
6th largest bank, 119 years old, national presence
Morgan bought deposits, branch network, and virtually all of WaMu assets for $1.836
billion, while letting the liabilities be picked up by the feds. They didn’t
acquire the stock, nor are they obligated to cover much of the bond debt—these will be wiped out. Nor did JPMorgan Chase & Co. have to shell out any cash, for it will be paid by the floating of new
stock, $8 billion worth.* Thus JPMorgan Chase will gain in value with the acquisition
of WaMu, pay for it with money raised from the sales of stock, and they will have an estimated $6 billion left over from the
sales of stocks. This is the kind of deals the Neocons give to their business
buddies, while have the small guy eat it for the housing bubble they have created through deregulation.
* Normally when new stocks (which requires SEC approval) or the release of a large block
of corporate owned stock occurs, the price of the shares goes down. First stock
prices reflects in a loose way the value of the company, thus more stock entail a reduction in the stocks price for it to
reflect this value. But since they have obtained such a give away (WaMu) from
our government, JPM went up on the 26th 11% (or about $15 billion dollars flowed into their stocks) which closed at $48.24. This was on top of a 5% jump on the 25th—before the acquisition was
This is the second sweetheart deal worked out through our government, the first
being Bear Sterns (5th largest securities company), which was acquired for under $10/share (less than 10% of what
its stock had been trading at on March 13th). Bear Sterns had a 52-week
high of $133.20, Jan of 07 at $172, and Feb. of or 08 at $92. On March 14th
the feds gave emergency funding to Bear Sterns. The Fed bank also agreed
to provide $29 billion of financing to a separate entity that will buy the mortgage-related assets of Bear Sterns—there
will be no recover of those funds by the Feds.
Employees will lose more than $5.2 billion of their holdings in the company mostly through the company trust which holds 27.3 million shares.
In 2007 Morgan Chase 2007 revenues were $146.9 billion of which $15.4 was profits
after taxes, employees world wide 180,667, market capitalization $145.9 billion assets as of June
20, 2008 $1.78 trillion. Current (0/26/08) market capitalization is $165.8 billion.