The hidden value of Wamu is in the interest spread between its interest bearing asset portfolio (interest income) and its interest bearing deposit liabilities (interest expense).
You cannot simply look at the net shareholder equity of $25 billion at the time of bankruptcy filing. You should take a look at the 2007 Wamu 10K (last available look into Wamu finance before take over)
If you look at the 2007 Wamu 10K, you can approximate the true hidden value of the Wamu loan portfolio:
Total Interest Earning Assets: $ 287 Billion at 6.8%
Total Interest Bearing Liabilities: $255 Billion at 4.44%
Weighted Interest Margin on Assets: %287 Billion at 2.89%
If you amortize this portfolio, it generated about $60 billion profit in 8 years and it 'theoretical' generate $142 billion in 30 years. Obviously, there should be a discount on the theoretical value, but I think a conservative estimate should be between $60 and $80 billion.
It's a safe assumption that the portfolio was not seized by FDIC due to safe harbor protection and the obvious protective nature of a "holding company". However, its also safe to assume that there is an inter-company agreement between the portfolio and the bank that funded the portfolio with the deposit base. The portfolio needs to pay back the 4.44% cost of the deposit base plus an unknown amount of servicing fees. That 4.44% cost is much lower in the years following 4.44% as interest rates have fallen for deposits at most banks since 2007. Another question is, does that saving of lower deposit interest rates since 2007 get passed onto the portfolio earnings? Also, what percentage of the portfolio has been re-financed? paid off? or bought back? Don't know.
I think the big "IF" assumption here is, did FDIC sell the loan portfolio to JPM as part of the $1.8 billion deal. If the answer is no, and it is being protected by safe harbor, then my simple first order valuation above should be a safe assumption at the end of receivership resolution.
The other question I've been pondering is the 75%/25% split between preferred and common. I think AZCowboy may have a point. The 75/25 split only refers to all the assets declared in the final confirmation. I think the LT is supposed to act as a passed through entity for anything that comes back outside of what was declared. Does anybody else have any legality thoughts on that interpretation?
