Thursday, September 25, 2008

Now I get It...I think

OK, so JPM buys the assets of WaMu's banks from the FDIC for $1.9 billion. The press release states that all of the deposits and "certain liabilities" will be included in the transaction.
JPM is assuming $265 billion in liabilities. Using the data from the 6/30/08 call reports, the 2 WaMu banks held $193.1 in deposits and $69.1 billion in FHLB Advances. Add them together and we get $262.2 billion. Pretty close to the $265 billion figure.
Total liabilities equaled $299.4 billion, so let's say that leaves roughly $34 billion in liabilities unaccounted for.
Total assets less goodwill and intangible assets totaled $339.2 billion. JPM is acquiring $296 billion in assets, leaving $43.2 billion in assets to pay off the liabilities and capital holders.
Hold on though. JPM is acquiring $31 billion in net assets for only $1.9 billion. So we take the $29.1 billion from the $43.2 billion and they have only $14.1 billion left.
For argument's sake, let's say that WaMu could sell those $14.1 billion in assets and actually raise $14.1 billion. Liability holders are in the hole for $20 billion and equity capital holders get nothing (listed at over $53 billion on 6/30/08).
So, we have a situation in which not only are the holding company creditors TOTALLY hosed, but those who lent to the BANKS are hosed. This does not happen very often and could have dramatic repercussions. Rating companies have traditionally bestowed higher ratings to banks because that is where the assets actually reside. The FDIC is certainly not obliged to share in the pain to mitigate the situation of bank creditors. However, I do not recall such dramatic losses at the bank level since the S & L Crisis.

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