general, the loans were mostly funded by the deposit base of WMB. remember "savings and loan"... bank takes the savings and then funds the loan. of course, the loan pays back much higher interest rate than what the bank pays back to the savings (deposit base) -- the difference is 2.9% profit margin on average.
WMI was never in trouble of solvency, only liquidity. WMB had 20 billion cash on hand. if on any given month the savings (deposit base) only redeemed(withdraw) like 5 billions, the bank could have easily funded it from the 20 billion cash buffer and refill the cash bussger with the cash flow from the loan portfolio. however, when there was a run on the bank in 2008, and thw deposit base redeemed 16 billion in a week, the bank suddenly had a liquidity problem. if the withdrawal rate continued, the bank will now be "forced" to sell some of the loan portfolio to come up with the cash to meet the witbdrawal demand. savings and loan only works if the withdrawal rate is a small percentage of the cashflow of the loan portfolio. if wamu started selling a portion of the portfolio in the depressed market of 2008, it would have only gotten 10 to 30 cents on the dollar. this selling would all of a sudden force the bank to "mark to market" the value of the rest of the $300 billion portfolio that it retains. if this happened, all of a sudden, the bank would seem "on paper", it is
insolvent to meet ths liability of the entire deposit base... what started out as a bank run liquidity problem (cashflow < withdrawal) would have become a bank insolvency problem (assets < liability)...worse yet, wamu's selling of its portfolio would also force other banks to write down the loans that they were also holding (mark to market rules). all of a sudden FDIC would be looking at a systematic insolvency (at least on paper) issues all across the board..an appocalypse scenario for FDIC.
Thats why FDIC suddenly took over WMB and placed its loan portfolio in safe harbor - so no creditoe can force it to sell it. The portfolio is then safely allowed to operate and pay back its deposit base in time. Meanwhile, if there were any more bank runs, JPM with more cash on hand, could temporarily meet the withdrawal demands.
Of the 300 billion loan principal, i believe around $40 billion was funded by in house money (WMI) and the rest were funded by the deposit base and other sources of cheap money. However, I believe WMI owned most of the profit margin of that $300 billion portfolio (2.9%). if i recall from their last 2007 10k, WMI was getting over $9 billion a year in operating interest margin on their entire portfolio. Of course, they did not book $9 billion a year in profit when they owned WMB, because they had other costs of running the bank (i.e. ezecutive pay) and other write downs (i.e. value of the bank buildings they owned). however, non of that WMB operating cost is our problem now since FDIC unloaded the entire bank (WMB) to JPM for $2.7 billion. now the portfolio in safe harbor gets to book all $9billion a year operating profit as net profit for its beneficiary (WMI/escrow holders).
JPM never stole Wamu. They bought a bank with no income stream. The value of Wamu had always been the income stream (interest profit margin) of its $300 billion loan portfolio. All JPM got was a working bank with personnel that could generste new loans but didnt have the profit margin to the loans in the book. Yes, it got most of the assets (principal value) of the 300 billion portfolio because it also got the 186 billion deposit base (liability) with the WMB bank purchase. However, it never got the 2.9% operating profit margin of tge $300 billion portfolio - that sits in safe harbor fillion our piggy bank for us escrow holders. Thats why I believe JPM reported $165 billion "non-performing" deposit base back in 2015. Its the deposit base that they inherited fron WMB purchase. It is non-performing for them because, the profits from the loans that thag deposit base funded, still belongs to WMI/escrow holders.
yku can argue that a functioning operation like WMB is worth more than $2.7 billion but not back in 2008 during the panic. just be thankful that safe harbor exists. the main purpose if the safe harbor rules is to ensure that the deposit base is protected by continual operation of the loan portfolio without untimely forced liquidation in turbulent 2008 market..as it should be as FDIC's main objective is to protect the deposit base. however, this forced sale of WMB and placing of the loan portfolio in safe harbor "accidentally" gave all of us Wamu bankruptcy investors a once in a life time chance to own that huge $9billion/year profit machine for less than a penny on the dollar.
now, dont you all rush to thank sheila blair to make all this possible for us WMI bankruptcy vultures!! :)
