Tuesday, September 30, 2008

Who lied to who and who told who what


The WSJ reports

The fall of Washington Mutual wasn't a surprise to the government. Nor was it a surprise to J.P. Morgan.

Three weeks before J.P. Morgan bought WaMu's deposits for $1.9 billion, officials at the Federal Deposit Insurance Corp. called J.P. Morgan to say the FDIC was carefully monitoring WaMu and that a seizure of its assets was likely. The FDIC said it would want to immediately auction off WaMu's assets if a seizure was necessary, people familiar with the situation told Deal Journal.

J.P. Morgan was well-prepared, then, when the FDIC asked for bids Tuesday, Sept. 23. On Wednesday night, the regulators told J.P. Morgan the bank had won the bidding, one person close to the situation said. 

So, three weeks before WaMu was taken over the FDIC told JP Morgan that they were likely to seize the assets.  

A week later the OTC agreed a deal with WaMu (resulting in the change of its CEO) that said

WaMu also announced that it has entered into a Memorandum of Understanding (MOU) with the Office of Thrift Supervision (OTS) concerning aspects of the bank’s operations, principally in several areas of its risk management and compliance functions, including its Bank Secrecy Act compliance program. In addition, WaMu has committed to provide the OTS an updated, multi-year business plan and forecast for its earnings, asset quality, capital and business segment performance. The business plan will not require the company to raise capital, increase liquidity or make changes to the products and services it provides to customers.

So WaMu was – according to WaMu’s press release – not required to raise capital, increase liquidity or make changes to the products and services it provides customers.

Now I am aware that the OTS is not the same organisation as the FDIC - but somewhere the government was talking out of both sides of its mouth - and what the FDIC told JPM made it more likely that WaMu would fail to raise capital or find a buyer.

I am renewing my call.  Sack Sheila Bair for cause.

John Hempton


Anonymous said...

No kidding man,
Asian and European stock markets are rallying hard on rumors of a 50bp emergency Fed rate cut.

CrocodileChuck said...


Agreed. And...

....another instance of: Crony Capitalism.


elartistamadridista said...

I am guessing that what caused the confiscation of WaMu was just the perceived threat to depositors. Judging from this intervention and the ones in Europe, authorities are putting depositors` interests above everything else. In the case of WaMu, it is possible that depositors would have been made whole even after bankruptcy, but not without causing some serious panics and runs-on-the-bank across the country.
You think that they should focus on the lenders instead and you make good points. Choosing depositors over lenders, is beneficial for the banks that are well capitalized now, but perhaps a death sentence to the others. I don´t know if this a strategy or they are just improvising.
Anyway, my point is that perhaps you are underestimating the importance of depositors in this whole mess. I say it humbly,I am no expert.

Anonymous said...

Sorry, John must disagree. Thus far SB is outperforming her peers. She got ahead of the curve and disposed of a mess quickly. If you want to be long banks in this enviroment take your rip/reward evenly. Re OTS, you are showing me nothing. That's akin to DEA v FBI, 2 conversations that have limited relivance to each other. desperate times, desperate measure; property rights in the US limited as they are (see Kelo) have been suspended for months. Paulson setting the 2$ BSC bid etc. In that light you were long calls, not equity. and they wiped you out. Same game playing out in FITb, SOV, NCC, to a lesser extent in STT. Play at your own risk it is a fast market.

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