Saturday, September 27, 2008

JPM & WM Follow Up

The FDIC has confirmed via a press release that the unsecured creditors of the Washington Mutual BANKS, will have to go the route of petitioning the receiver. Back of the line fellas, wait and see what nuggets you get. "...the FDIC as Receiver for Washington Mutual Bank does not anticipate that equity and subordinated debt holders of the bank will receive any recovery on their claims. "

My estimate of potential losses was too high. JPM also assumed secured debt of the WaMu Banks. Instead of $20 billion, I am guessing $7 - $10 billion. I may adjust this again as more data on deposit amounts and other goodies become available.

Washington Mutual, Inc. is, of course, still toast. The holding company and an investment subsidiary have filed their Chapter 11 paperwork. Although I am obviously thrilled about the $0 bill from the FDIC, this is a total demolition of equity holders and creditors. I would love to see this become the new model for failures.

This has essentially shut down the interbank market, not that the money was flowing like wine before this. According to some sources, Wachovia 30 year subordinated debt is trading @ 45 cents on the dollar. So the credit markets are closed too. What they need is a massive inflow of cash with very few strings attached and a Wall Street insider to pass out the checks.

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