There’s always something to howl about

Some Details on the WaMu Buyout

In a comment to an earlier post I was sent the link to JP Morgan Chase’s Investor Presentation regarding their purchase of WaMu.  This was courtesy of Bob Wilson, whom readers may know for his many thoughtful comments here on BHB.  I highly recommend reading it by clicking here, but in the mean time – some of the highlights:

  • They are taking over the deposits and leaving the liabilities.  This helps the FDIC out tremendously but I can’t help thinking of the great line from The Godfather: “Leave the gun, take the cannoli.”
  • They plan to exit all non-bank originated retail lending.  Say good-bye to most of WaMu’s products.
  • They are most excited by WaMu’s large presence in California.  According to their projections CA sees the most population growth, followed by Texas and then Florida.  This is great news for these hard-hit areas.  Arizona sees about half the growth rate and the northeast and rust belt continue their problems with fundamentals.  (I believe we are looking at a very stratified housing market for some time to come.  There has never been a national housing market and such a concept is becoming harder to even say with a straight face.)
  • JP Morgan Chase paints a pretty rosy picture of potential earnings.  They look at their credit card and investment sales in-branch and overlay that onto all the WaMu branches.  But I don’t see the same types of customers at WaMu as I do at Chase and I have a hard time believing Chase will get the same level of commercial banking profits from them.
  • Expected cost of this acquisition is $1.5 billion now and another $.5 billion over the next couple of years.
  • They will keep WaMu’s low risk, profitable lending programs in the multi-family niche which should be welcomed by investors who are currently getting shut out of the market by underwriting constrictions.
  • Finally, they project current-pricing-to-trough depreciations for CA, FL and the US as a whole.  The numbers are interesting, but what’s more interesting are the headings.  They project losses based on three scenarios: Current Estimates, Deeper Recession and Severe Recession.  Apparently the analysts feel we are in a recession now no matter what the government calls it.  Under these headings CA is looking at losses of 10%, 14% and 24% respectively.  Florida’s expected depreciation is 16%, 21% and 36%!  Finally, the entire US housing market (there we go again) is looking at price depreciation of 8%, 11% and 20% under those three headings.

Wish I had a summary of all this, but I’m just giving you the raw details.  I’ll leave it to a more banking minded writer to tell us what it means.  One last thought: I just got off the phone with one of my real estate agent clients.  He wanted to know what his WaMu stock is worth now…


8 Comments so far

  1. Tom Vanderwell September 26th, 2008 12:33 pm

    Tell him his WaMu stock is good for wall paper……

  2. Thomas Johnson September 26th, 2008 1:07 pm

    I was thinking fish wrap to go with the cannoli theme.

  3. Bob in San Diego September 26th, 2008 8:32 pm

    They look at their credit card and investment sales in-branch and overlay that onto all the WaMu branches. But I don’t see the same types of customers at WaMu as I do at Chase

    This jumped out at me and I see it as you do. I think they are way off on their credit card projections, and the hard sell that is coming down the pike isn’t going to go over well.

  4. Tony Sena September 27th, 2008 1:17 pm

    You know I really thought that Wells Fargo would have been the one that would have purchased WAMU because of their strong financial position right now!

    Either way, I think this is a great move for JP Morgan as they are getting a large bank at such a deal. Even if it doesn’t reach the revenue potential they anticipate, I think it will still be a great investment for JP Morgan.

  5. Bob in San Diego September 27th, 2008 8:49 pm

    Tony, at first I thought it would be Wells also, but looking at the JPM piece, it is pretty clear that there was less overlap with JPM than Wells. I’m betting that Wells simply didnt ante up enough and lost the bidding war. This made more sense for JPM. It was mostly a defensive move for Wells and i’m sure the feds used Wells to drive up the price.

  6. Tom Vanderwell September 27th, 2008 8:59 pm

    I’m a bit more pragmatic. I think that Wells is looking at their options and saying, “Hmmm, nope, I’m not hungry for WaMu, I want to get something a little different.” I think they passed because they want to pick up a Wachovia or a National City or something along that line…..


  7. Jim in Chatham NJ September 29th, 2008 7:47 am

    There will be lots of Wamu locations closing, with customers redirected to chase branches, at least that is what we will see here in the North East. Chase is a very well run operation, Jamie Dimon is a very smart cookie and I bet will do better with this than people project.

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