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JPM Benefits of the WaMu Purchase
What Did JPM Gain in the purchase of WAMU bank and subsidiaries?
JPM had long coveted WaMu's West coast branch network, and had earlier
offered $8 per common share for the entire company, an offer that would
have assumed all debt and preferred stock of both WMB and WMI. It was
rebuffed at the time for making a “lowball” offer; it was less than WMI
common stock's market price at that time.
Through the seizure and acquisition,
JPM expanded its' banking footprint into states with little Chase coverage.
These include Washington, Oregon, California, and Florida. Along with
$307B in assets they acquired $188B in deposits, 2239 branches, 4,932
owned and branded ATMs, and 43,198 employees.
They were also given the ability to return any branches they
didn't want to the FDIC. JPM has indicated it would lay off 9200 employees
and recently indicated they would cut another 2800 positions through attrition;
the cuts total nearly 30% of WaMu's employees. Included in the purchase
price was $1.5B of real estate or other assets (JPM's 10K, 12/31/08, p
82) and WMB's credit card business. Listed figures are as of 06/30/08
as stated in the OTS fact sheet below.
http://files.ots.treas.gov/73002.pdf
WMB's credit card business had been expanded on June 6, 2005 with the
purchase of Providian Financial for $6.45B. JPM assumed both the WMB and
Providian credit card subsidiaries along with all other subsidiaries of
the bank. $10.6 Billion in credit card receivables were included.
http://en.wikipedia.org/wiki/Providian
JPM's Loan Portfolio
JPM stated in their conference call on 09/25/08 that the transaction would
be, "Accretive immediately, 50 cents" (per share), and that
it would result in a "Net cost savings (of) $1.5B, conservatively."
"$176B (of) home loans (were) assumed", with "$30.7B losses
projected."
http://wamucoup.com/JPM_telecon_all.wma
"Just shy of $300B of assets" were assumed, with net assets
of $31B after deducting liabilities. JPM then stated they would mark down
$31B related to the loans. Coincidence? JPM can use those write downs
to offset $31B in profits, resulting in a significant tax savings. At
a 35% tax rate, this represents a tax savings of $10.85 Billion.
When asked about loan losses if the economy were to worsen, JPM stated
that even under the pessimistic assumption if the loan losses exceeded
expectations, the worst they would do would be to end up flat. Why? Because
the other WMB assets would still be making money. JPM stated, "This
transaction's generating $12B of capital over the next 3 years.” (That
is after taxes.) WMB's acquisition would result in, a "stable, predictable
earnings stream" due to retail customers.
An interesting quote from the 8-K filing on 01/15/09:
-- Exhibit 99.2, EARNINGS RELEASE FINANCIAL SUPPLEMENT, FOURTH QUARTER
2008, page 4, CONSOLIDATED FINANCIAL HIGHLIGHTS, footnote b:
"JPMorgan Chase acquired the banking operations of Washington Mutual
Bank for $1.9 billion. The fair value of the net assets acquired exceeded
the purchase price which resulted in negative goodwill. In accordance
with SFAS 141, non-financial assets that are not held-for-sale were written
down against that negative goodwill. The negative goodwill that remained
after writing down non-financial assets was recognized as an extraordinary
gain."
After writing down part of the negative goodwill, JPM recognized an extraordinary
gain of $1.9B. Without this extraordinary gain due to Washington Mutual,
JPM would have reported a loss for the quarter.
http://investor.shareholder.com/jpmorganchase/secfiling.cfm?filingID=950123-09-686
FDIC accounting report on receivership detailing assets transferred
http://wmish.com/docs/WaMuReceivershipFinancialStatements(unaudited)thru123108.pdf
JPMorgans hedge fund was amazingly unscathed by the economic turmoil.
Good trading sense or is there more to it?
http://www.huffingtonpost.com/2009/03/03/jpmorgan-derivatives-5-bi_n_171312.html