Not affiliated with WaMu, or JPMorgan Chase, not an organization, just a burned shareholder seeking compensation.
These are some of the notable quotes that have occured since Washington Mutual was seized. If words are emphasized in bold, it was done so for this page, and it did not occur in the original.
I should not have to remind you the FDIC has no role until the PFR (i.e. the OTS) rules on solvency and the PFR utilizes PCA.
You personally, and the FDIC as an agency, would likely create added instability if you pursue what I strongly believe would be a precipitous and unprecedented action. And if it occurs without my consent, I will not sit quietly by and observe - there would be a public reaction. Put yourself in the PFR's shoes in this situation. We have our responsibilities, including the right of primary supervisory determination of this institution's condition, and until Congress changes the statutes under which we operate, our responsibilities as the PFR are not to be simply tendered to the FDIC in a down economic cycle. It seems as though the FDIC is behaving as some sort of super-regulator - which you and it are not.
I also believe there could be a high potential for FDIC actions of the type you are contemplating to cause irreparable harm to Wamu if, at any point in the near future, Wamu wishes to actually seek a buyer. The potential harm could stem from the fact that any such potential buyer may have been all ready been contacted by the FDIC.
If in fact any meetings or discussions have already taken place by the FDIC with either JPMC, Wells Fargo, or any other entity, in any capacity in which WaMu was even mentioned, I would like to see a copy of the signed confidentiality agreement signed by the bank - required in any resolution scenario before an institution is told the name of the failing bank.
This is an OTS regulated institution, not an FDIC regulated institution. We make any decision on solvency, not the FDIC, and I have staff equally as competent as staff at the FDIC, whom I know well.
The FDIC can do whatever internal contingency planning it wishes, but should in no way go outside the FDIC. This is a 3-rated institution. Are you also trying to find buyers for Citi, Wachovia, Nat City and others?
Finally, if Wamu were to learn of the FDIC's actions, there may well be a question as to whether these actions may constitute a disclosable event. That, in and of itself, is a reason not to proceed with this approach for a publicly traded institution. The government should not be in the business of arranging mergers - particularly before they are necessary, and we are not at that point in WaMu's situation.
I will attempt to be on the Friday conference call, and I am going to assume this notion is not going to be raised.
John
email from John Reich to Sheila Bair August 6, 2008, from page 265 of the April 16, 2010 Senate Permanent Subcommittee on Investigations exhibits. (lg pdf)
"We are dissatisfied with the loss to our partners from our investment in Washington Mutual," said TPG spokesman Owen Blicksilver. "The unprecedented turmoil in global financial markets and resulting macro crisis of confidence has radically changed the dynamics for all financial institutions and led to widespread losses among investors throughout the sector." JPMorgan Chase buys WaMu assets after FDIC seizureThe Huffington Post September 25, 2008
"The third phase, which is depicted using daily data in Figure 2, can be distinguished by a dramatic increase in the usage of the deposit facility by banks, in addition to a continuing rise in the spread. The amounts deposited with the ECB rise from a daily average of 0.09 billion euros in the week starting September 1, 2008 to a daily average of 169.41 billion in the week of September 29, 2008. Some of the major developments of the financial crisis are also indicated in Figure 2. The amounts deposited with the ECB start rising after the collapse of Washington Mutual when the crisis spreads outside the investment banking realm. Importantly, this rise precedes the ECB announcement of a change in its tender procedure and in the standing facilities corridor on October 8, 2008. The ECB reduced the corridor of standing facilities from 200 basis points to 100 basis points around the interest rate on the main refinancing operation as of October 9, thus making depositing at the deposit facility relatively more attractive." From the NY Federal Reserve's Liquidity Hoarding and Interbank Market Spreads: The Role of Counterparty Risk (pdf), quote from bottom of document page 3.
SEC. 141. LEAST-COST RESOLUTION.
(a) LEAST-COST RESOLUTIONS REQUIRED-
`(G) SYSTEMIC RISK-
`(i) EMERGENCY DETERMINATION BY SECRETARY OF THE TREASURY- Notwithstanding subparagraphs (A) and (E), if, upon the written recommendation of the Board of Directors (of the FDIC) (upon a vote of not less than two-thirds of the members of the Board of Directors) and the Board of Governors of the Federal Reserve System (upon a vote of not less than two-thirds of the members of such Board), the Secretary of the Treasury (in consultation with the President) determines that--
`(I) the Corporation's compliance with subparagraphs (A) and (E) with respect to an insured depository institution would have serious adverse effects on economic conditions or financial stability; and
`(II) any action or assistance under this subparagraph would avoid or mitigate such adverse effects,
the Corporation may take other action or provide assistance under this section as necessary to avoid or mitigate such effects. Federal Deposit Insurance Corporation Improvement Act of 1991 Sec. 141aG
The following items 8-14 are from pdf pages 35-39 of this bankruptcy document 103-4.
II. The Appointment of a Receiver by the OTS is not Determinative of Financial Insolvency as defined by the Bankruptcy Code
8. Although the OTS seized WMB (the largest asset of WMI prior to receivership)
on September 25, 2008, this seizure is not determinative of the financial insolvency (as defined by the Bankruptcy Code4) of WMI as of that date.
9. The OTS did not conclude that WMB (or WMI) was insolvent as of the date of
receivership. Rather, it determined that:
(a) The Savings Bank is likely to be unable to pay its obligations or meet its
depositors’ demands in the normal course of business; and
(b) The Institution is in an unsafe or unsound condition to transact business.
10. Moreover, the OTS’s finding that WMB was “in an unsafe and unsound
condition” is not determinative of the insolvency of WMI or WMB during the 90-day Look-Back period. After experiencing increased deposit outflows due to the IndyMac failure in July 2008, the pattern of deposit activity at WMB appeared to normalize until September 15, 2008. Beginning on this date, WMB, which reported its deposit cash flows to the OTS on a daily basis, began to experience significant cash outflows from its demand, time and other deposit accounts. According to the OTS, “[s]ignificant deposit outflows began [on that date] and . . . [d]uring the next eight business days, WMB deposit outflows totaled $16.7 billion.” Based on the daily deposit balances reported to the OTS, WMB’s daily cash flows are shown on Exhibit B.
11. Nevertheless, from September 15, 2008 to September 25, 2008 WMB was able to
satisfy these deposit outflows. It was not until September 25, 2008 that the OTS seized WMB. Importantly, the OTS stated that “adverse events in the financial markets” (OTS Fact Sheet, p. 1) were the cause of the material deposit outflows.
12. Based on my review to date, there is no indication that the OTS performed a
solvency analysis consistent with the test for insolvency specified in the Bankruptcy Code. There is no indication that the OTS assessed the fair saleable value of the assets of WMB (or WMI). Nor is there an indication that OTS compared the fair saleable value of the assets of WMB (or WMI) to the total amount of either company’s respective liabilities. There is no indication that the OTS performed a comprehensive cash flow analysis of WMB (or WMI). Instead, the OTS found that “WMB met the well-capitalized standards through the date of receivership.” Thus, without a thorough analysis of the assets, liabilities and capital of WMI and WMB, it is not possible to come to a reliable conclusion concerning the financial solvency of either entity, whether on a consolidated or stand-alone basis.
III. There are Substantial Indicia of Solvency that Call Into Question Debtors’ Presumption of Insolvency Prior to the Date of Receivership
13. Even before considering the Disputed Assets, Debtors have not claimed or
provided a sufficient factual basis for concluding that the amount of WMI’s liabilities exceeded the value of its assets, at fair saleable value, at any date prior to the Date of Receivership. Debtors have not claimed or provided a sufficient factual basis for concluding that WMI was, or was rendered, unable to pay its debts as they became due on any date prior to the Date of Receivership. Finally, Debtors have not claimed or provided a sufficient factual basis for concluding that WMI was, or was rendered, inadequately capitalized at any date prior to the Date of Receivership. Further, the contemporaneous internal (i.e., company) and external (i.e., market place) financial data that I have reviewed to-date cast doubt on the presumption of WMI’s insolvency for the 90 days preceding WMI’s bankruptcy.
(a) There is significant data to suggest that WMI was able to pay its debts as they
became due prior to the Date of Receivership. For example, based on the current record, it appears that:
(i) Neither WMI (as holding company) nor WMB failed to make any
scheduled interest or principal payment on third-party debt.
(ii) WMI continued to meet its operating expenses. For example, trade debt
and payroll continued to be paid through the Date of Receivership.
(iii) WMI issued a press release on September 15, 2008 stating that the S&P
downgrade was attributable to “worsening market conditions and not to any material change in the evaluation of Washington Mutual’s financial condition.”
(iv) By mid-September 2008, the rates on credit default swaps for WMI
investment grade debt had fallen from much higher levels in July and August 2008. Thus, the market’s perception appeared to be that of decreasing default risk.
(v) As late as September 16, 2008, WMI was anticipating the open market
repurchase of $1.4 billion of senior notes and a tender offer to repurchase $1.2 billion of covered bonds.
(b) There is significant data to suggest that the value of WMI’s assets, at fair saleable
value, exceeded the amount of its liabilities, prior to the Date of Receivership. In fact, based on preliminary analysis, the net asset value of WMI appeared to be stabilizing, if not improving, as of mid-September 2008. For example:
(i) Some Wall Street equity analysts expressed a favorable opinion about the
prospect for Washington Mutual’s stock. On September 12, 2008, Goldman Sachs’s equity research department upgraded its recommendation on Washington Mutual’s common stock from “sell” to “neutral”. On September 19, 2008, Fox-Pitt Kelton published an equity research report stating the Washington Mutual was “significantly undervalued relative to what a likely acquirer might pay,” even after assuming additional losses of $5.00 per share.
(ii) As of September 19, 2008, the market capitalization of WMI (on a
consolidated basis) was over $7 billion.
(c) There is significant data to suggest that WMI was adequately capitalized prior to
the Date of Receivership.
(i) The OTS found that “WMB met the well-capitalized standards through the
receivership date.” Consistent with this finding by the U.S. Government, WMI’s
contemporaneous internal forecasts anticipated capital levels “strongly in excess of all regulatory ‘well-capitalized’ minimums” even without further capital injections.
(ii) In WMI’s internal presentations (as of September 2, 2008) and its public
release of 3Q08 earning guidance (on September 11, 200816), the company estimated 3Q08 excess liquidity of $50 billion17 and an additional cash balance of $12B. Even under its internal “stress case,” WMI was forecasting liquidity “significantly” in excess of its liquidity threshold.
(iii) WMI (on a consolidated basis), reported net GAAP losses for the first and
second quarters of 2008.18 However, these reported losses were almost entirely due to non-cash charges to the company’s income statement. For both quarters, the company generated positive operating cash flow totaling over $6.3 billion. In both quarters, cash flow was further augmented by positive cash flows from investing activities which totaled approximately $4.4 billion through June 30, 2008. At June 30, 2008, WMI reported $23.7 billion of tangible equity and $26.1 billion of stockholders equity.
(iv) At least one Wall Street equity analyst believed that Washington Mutual
had sufficient access to capital. On September 11, 2008 HSBC issued an equity research report stating that “as long as [Washington Mutual] has regulatory support (and we believe WaMu has regulatory support. . .), it can continue to raise money needed through the deposit market. . .and FHLB advances.”
14. The seizure of WMB by the OTS was a one-time event that significantly
transformed the structure of Washington Mutual as an integrated enterprise, and the relationship between WMI and WMB. As a result WMI, as constituted prior to the date of receivership, was very different from WMI, as constituted post-receivership. Because this was a transforming event that occurred on a single date, it does not provide economic evidence to support a presumption of insolvency prior to the event, i.e., for all, or part, of the 90-Day Look-Back period.
-- ends items 8-14 from pdf pages 35-39 of this bankruptcy document 103-4. --
"We propose to decapitalize WMBfsb by returning $20 billion of capital to its parent. The $20 billion will include the master note of approximately $7 billion, proceeds from $3.5 billion of Discount Notes and cash generated through additional wholesale deposits and advances from FHLB Seattle. We propose the payment of at least $10 billion by September 30, 2008 and the remaining $10 billion through December 2009."
"The net balance sheet of WMBfsb will be approximately $34 billion to $36 billion after Project Fillmore. The leverage ratio will decrease to 25% from 62%. A well-capitalized institution requires an 8% or higher leverage ratio"
WaMu letter begining on pdf page 45 of this bankruptcy document 103-1.
"The trust needed to make capitalism worked has been removed. I am not a conservative - but I will argue - along with many conservatives - that the most important function of government in a capitalist society is provision of a framework by which property rights can be defined and enforced as this is the key to making a capitalist society function. The Government is now acting as if the framework does not apply to them. That is bad whatever your political persuasion." from John Hempton of Bronte Capital, blog post The reckless, irresponsible seizure of Washington Mutual September 28, 2008
"No person shall be held to answer for a capital, or otherwise infamous crime, unless on presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation." Fifth Amendment to the US Constitution
The below quotes are all taken from this bankruptcy filing Plaintiffs reply to JPMorgan which uses references from the Texas Suit's first filing, which is reproduced starting on pdf page 19 of this bankruptcy filing Texas Debtors First Suit
"JPMC deceptively gained access to Washington Mutual's confidential financial
records through the use of "plants" and "moles" engaged in corporate espionage
at Washington Mutual."
"JPMC misused the wrongfully obtained confidential information of Washington
Mutual to bargain and work with federal regulators for the seizure and sale of
Washington Mutual's assets."
"JPMC leaked false and harmful information to news media, which incited
depositors to make withdrawals from their Washington Mutual accounts."
"JPMC obstructed Washington Mutual's efforts to sell itself in a fair bidding
process."
"JPMC exerted improper influence over government regulators to prematurely
seize Washington Mutual, a solvent and liquid bank, and to sell assets of
Washington Mutual without an adequate or fair bidding process."
"In gaining access to Washington Mutual's confidential records, JPMC and
Dimon falsely promised that JPMC would maintain the secrecy of Washington
Mutual financial information."
"JPMC ... disclosed [Washington Mutual's confidential] information as it saw
fit to news media, government regulators, and investors, in such way as promoted
its scheme."
"JPMC used its insider status to aggressively gather confidential information
from Washington Mutual, which it then analyzed in order to accurately estimate
the value of WMB deposits, mortgage portfolio and other assets in order to make
a detailed and profitable prearranged bid to the FDIC for the purchase of those
assets."
"In September of 2008, the Defendants shared the confidential information with
outside investors."
"Defendants willfully and intentionally interfered with Plaintiffs' bond contracts
by inducing WMI and WMB to breach the contracts."
"Defendants made WMI's and WMB' s performance under the bond contracts
impossible, more burdensome, difficult and expensive by executing its scheme to
strip away the source of revenue from which WMI and WMB were to meet their
obligations under the bond contracts."
"The Defendants violated the confidentiality agreement ..."
"The failure of Defendants to pay for the benefits they received ... occurred only
because the Defendants used fraud, duress, and took undue advantage by way of
false pretenses, deceit, breached trust, and broken promises."
-- ends the Plaintiffs reply to JPMorgan bankruptcy document quoting --
"We could have paid a dollar and still won." Jaime Dimon has used this phrase and similiar phrases many times in discussing the WaMu piracy. This is one source Chase CEO Dimon: No more cuts in Seattle operations.
from an email by Tim Main to Charlie Scharf: Re: West, March 30, 2008
"I of course love the idea of a slightly higher price than they deserve in the form of a contingent where their shareholders pick up the first loss versus say their high credit case until they literally get zero, then the government kicks in with some form of second loss - either 75% for them and 25% for us, or they take 100% for a slice and then its all for us.
Either way, something that really really reduces our risk and gets the government comfortable that they only get involved if shareholders get zero. It sounds to me like the government is really concerned as they should be about taking losses, so they should like this versus alternative."
Exhibit 9, p. 169 JPMorgan_combined_PDF
