The part that works [the branches].What part of WaMu is JPM buying
The part that doesn't work [the mortgages].what part is the government running
It isn't.how is this different than the Paulson Piggy Bank?
(JPM wins, the taxpayer is f*cked.)
The part that works [the branches].What part of WaMu is JPM buying
The part that doesn't work [the mortgages].what part is the government running
It isn't.how is this different than the Paulson Piggy Bank?
From Chase-WaMu Deal, a Bank to Rival BofABy taking on all of WaMu’s troubled mortgages and credit card loans, JPMorgan Chase will absorb at least $31 billion in losses that would normally have fallen to the F.D.I.C.
BTW, Citi is kicking the tires at Wachovia.But JPMorgan is not taking any chances. It will write down around 17 percent of the value, or about $31 billion, of the loans on WaMu’s books. It might have to write down another $18 billion of WaMu assets in the future, according to CreditSights.
Even with that, it still believes that the acquisition will be 15 percent accretive to next year’s earnings.
That’s because JPMorgan let the bank fail before taking it over, wiping out bondholders of the parent bank, as well as equity holders. So it will not be responsible for paying off the $14.4 billion in debt associated with the bank holding company. Equity holders, who have seen WaMu’s market value drop from around $35 billion last year, will also be wiped out.
Avoiding those liabilities will provide a cushion to absorb WaMu’s losses — and could contribute to a large profit for JP Morgan shareholders.
Either way, Citigroup and Wells Fargo are unlikely to bid more than a few dollars a share for Wachovia, substantially less than the $10 at which its shares were trading Friday. It was unclear whether bondholders would also take a steep discount on their holdings, or be entirely wiped out.
Other aspects of the deal also remain in flux. One is whether all of Wachovia is up for sale, or whether the company might be carved up.
Citigroup and Wells Fargo, for example, might bid only on Wachovia’s retail banking business. Wachovia retail brokerage, the second largest behind Merrill Lynch, might remain independent. It was unclear what would happen to Wachovia’s small investment bank.
Both Citigroup and Wells Fargo are interested in acquiring Wachovia’s branches and roughly $400 billion in deposit financing. For Wells Fargo, a deal would extend their branch banking network eastward across the Mississippi, creating a nationwide franchise that would compete with Bank of America and JPMorgan Chase. Citigroup and Wachovia declined to comment. Wells Fargo did not immediately return calls seeking comment.
For Citigroup, the deal would vastly expand its retail branch network after struggling to build one for years. It would also give it access to more stable customer deposits, so it could rely less heavily on outside investors for funds. Bank executives there see this as game-changing opportunity.
Still, both Citigroup and Wells Fargo have serious concerns about taking on Wachovia’s $800 billion loan portfolio. In particular, they are worried about a big swath of troubled mortgages tied to the 2006 acquisition of Golden West, a California lender that specialized in pay-option mortgages. But lacking the time for more than a crude analysis of Wachovia’s finances, both banks are trying desperately to assess the risks.
In an abrupt change of course, Wachovia Corp. said Friday it agreed to be acquired by Wells Fargo & Co. in a $15.1-billion (U.S.) all-stock deal, wiping out Wachovia's previous plan to sell its banking operations to rival suitor Citigroup Inc.
A key difference is that the Wachovia deal will be done without government assistance, while the Citigroup deal would have been done with the help of the Federal Deposit Insurance Corp.
I have the same logic as yours. But I suspect I will face margin call again next week.pitz wrote:Latest Paulson plan is to buy equity in the banks, in exchange for cash.
Essentially, new equity issuance will be highly dilutive, since its likely that equity infusions would come at current market prices on the banks.
Is this the proverbial 'take the shareholders out of the insolvent companies and shoot them' move?
Logically, the stock of every sector and firm, except US banking, should skyrocket on the news. And US/Canadian banks that are perceived to be strong and highly capitalized should get a nice bounce..
Any fundamental problems with my logic, other than logic doesn't work in an irrational world?
The boards would not take the feds up on their offer if it wasn't in the best interest of the shareholders. It is probably best for shares to have a diluted value rather than being or becoming worthless. If they don't want the capital infusion, they can say no.pitz wrote:Is this the proverbial 'take the shareholders out of the insolvent companies and shoot them' move?
If it were my tax dollars (i.e. I was an American), I'd be upset if this took place at current market prices. Any such rescue should be made on similar terms as the AIG rescue, or the BoA cash infusions from offshore sovereign wealth funds (i.e. the government should offer less than market value or get preferential treatment).Essentially, new equity issuance will be highly dilutive, since its likely that equity infusions would come at current market prices on the banks.
I'm flabbergasted. The Socialist States of America?As part of its new plan, the government is set to buy preferred equity stakes in Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp., Merrill Lynch, Citigroup Inc., Wells Fargo & Co., Bank of New York Mellon and State Street, according to people familiar with the matter.
Not all of the banks involved are happy with the move, but agreed under pressure from the government.
A high level view is that Citi's board and CEO are not on the same wavelength. Doesn't sound like there is a lot of great crisis management skill at work in the Citi organization:Yet Goldman -- whose stock rose 2.5 percent Friday and which now has about the same market value as Citi -- continues to resist such a deal because it would be disruptive to Goldman's culture and could make it vulnerable to big losses from some of Citi's assets, the source said.
That reluctance has not changed since Goldman Chief Executive Lloyd Blankfein was encouraged by government officials to call Citi CEO Vikram Pandit. The call, which took place in September, lasted less than a minute and neither side was interested, people familiar with the matter said.
~millergd~In a call with senior managers on Friday morning, Pandit reportedly said he intends to keep the bank whole and independent. But events appear quickly to be overtaking Pandit, the former Morgan Stanley executive and hedge-fund manager who took over as CEO last year.
Citigroup's board was meeting Friday to discuss its options, according to a report by Bloomberg. The board may decide to overrule Pandit and sanction sell-offs.
Y'know, the same set of guys keeps morphing from business to Washington and back again. Just a little bit of conflict of interest there, folks.The bank’s downfall was years in the making and involved many in its hierarchy, particularly Mr. Prince and Robert E. Rubin, an influential director and senior adviser....
When he was Treasury secretary during the Clinton administration, Mr. Rubin helped loosen Depression-era banking regulations that made the creation of Citigroup possible by allowing banks to expand far beyond their traditional role as lenders and permitting them to profit from a variety of financial activities. During the same period he helped beat back tighter oversight of exotic financial products, a development he had previously said he was helpless to prevent.
And since joining Citigroup in 1999 as a trusted adviser to the bank’s senior executives, Mr. Rubin, who is an economic adviser on the transition team of President-elect Barack Obama, has sat atop a bank that has been roiled by one financial miscue after another....
“They pushed to get earnings, but in doing so, they took on more risk than they probably should have if they are going to be, in the end, a bank subject to regulatory controls,” said Roy Smith, a professor at the Stern School of Business at New York University. “Safe and soundness has to be no less important than growth and profits but that was subordinated by these guys.”