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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…

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