Kirsten Grind's new article! MERRY CHRISTMAS!!!!
PART TWO...
The last days
By the beginning of September, Dimon’s plan to buy WaMu from the government was taking shape, according to documents and emails from the bank. The deal envisioned buying the assets and liabilities of WaMu, but leaving behind $15.2 billion in debt with the FDIC.
On Sept. 7, WaMu’s board ousted Killinger and replaced him with Alan Fishman, a New York banker, who was brought in to turn around the bank. Fishman immediately flew to Seattle to rally employees and executives
Two days later, in Washington, D.C., JPMorgan executives attended high level meetings with government officials, according to records received through the Freedom of Information Act.
The first, hosted by Paulson, in his conference room at the Treasury, included Dimon, JPMorgan Chief Financial Officer Michael Cavanagh and Scharf, head of the retail bank, both of whom played a role in the offer for WaMu in March. Other Treasury officials also attended, including two who worked on TARP, the bank bailout bill. The purpose of the meeting is unclear, and the government has declined to discuss or release documents about it.
Following the 45-minute meeting with Paulson, Scharf and Cavanagh met with Bair, the chairman of the FDIC, at its headquarters nearby. Details of that meeting also are unclear, and the government has similarly declined to comment about it.
On Sept. 11, WaMu’s bank run began after Moody’s Investors Service downgraded WaMu’s debt to junk status prompting negative news reports about the bank’s health.
As customers pulled $600 million from the bank nationwide that day, JPMorgan executives sent an email further discussing a purchase of “West” as a distressed asset from the FDIC.
By the next day, JPMorgan had produced a two-page slide presentation showing the “West” deal structured as a purchase from the FDIC and a plan to raise capital to fund chase from the FDIC and a plan to raise capital to fund it, according to the court documents.
Three days later, company executives had expanded the presentation to 31 pages. It now showed accounting treatment, tax implications and WaMu’s financial position.
By now, Bair had told Fishman to sell WaMu by the end of the month, or it would be placed on the FDIC’s list of troubled banks, a move that was sure to perpetuate WaMu’s bank run, according to people familiar with the matter. Fishman quickly flew to the East Coast to meet with potential bidders, including Wells Fargo, Citigroup and JPMorgan
On Sept. 16, Fishman met with Bair in Washington, D.C., to update her on efforts to find a private buyer. She told him that the FDIC had been approached by at least one financial institution interested in buying WaMu from the government as a distressed asset, according to WaMu executives. Such a sale by the government was likely to be at a lower price than through Fishman’s private deal.
Bair didn’t name the interested party or parties, but said she had directed them to Fishman, leading him to believe that she was helping WaMu find a private buyer, according to people familiar with the meeting.
On Sept. 18 — seven days before regulators would seize WaMu — JPMorgan executives emailed back and forth about “FDIC resolution methods,” outlining how the government agency handles assets purchased in a distressed sale.
A day later, JPMorgan prepared a presentation on the “West” acquisition to explain the deal to the credit rating agencies. The presentation said JPMorgan had been “contacted by FDIC about interest in West. Want a solution by Friday Sept. 26.”
The report added that JPMorgan would not participate in Fishman’s auction. JPMorgan’s “approach is to work directly with FDIC,” the report said.
At 1:15 p.m. Eastern time on Tuesday, Sept. 23, JPMorgan officials received an email from the FDIC, “offering select financial institutions, such as yours, an opportunity to bid on a depository institution,” according to the court documents.
At WaMu, executives had no idea this was happening. FDIC isn’t required to notify banks when it launches a bid process before a seizure. In WaMu’s case, it didn’t tell the executives that it was shortening its own Sept. 30 deadline. The executives noticed that banks interested in buying WaMu in a private deal had suddenly stopped looking through its books as part of their due diligence process. WaMu’s deposit run also had slowed.
On Sept. 24, the day before WaMu was seized, the FDIC notified JPMorgan that it had won the WaMu purchase. The declined requests to release them. But the final deal for WaMu conformed almost exactly to the terms of one of the scenarios JPMorgan had mapped out in July, according to court documents.
At 6 p.m. on Sept. 25, federal regulators closed WaMu
A warm welcome
In July of 2009, Dimon sat at a conference room table in the Seattle Grand Hyatt, explaining his purchase of WaMu to reporters and television crews.
WaMu, he said, posed a giant risk to his company when mortgage loans that surely would cost
JPMorgan $30 billion.
What’s more, JPMorgan placed the only viable bid, which meant it overpaid. The company could have bought WaMu for $1, he said.
“It was a risk to do what we did. And, you know, look at it the other way around. We salvaged a lot of jobs, we saved a lot of people, we’re still doing business and we’ll be a great citizen here and in California and Oregon.”
By then, JPMorgan had booked billions in additiona revenue, thanks to the WaMu purchase.
A few moments later, Dimon walked into a packed banquet room and received a standing ovation from the region’s most prominent business leaders, the Rotary Club of Seattle
