I only had time to flip through it. Can you point out where it explicitly refers to a 0-1% recovery?

EDIT: OK, I see it: page 26. That however is the CYA estimate, not a 'real' one (note all the classes with estimated recoveries of 0-100%). If I had to guess I'd say the real recovery will be well above 1% but probably still single digits w/ say, 10-12% as an upside. That complete guess is based on 1) supposition that they lowball this to make subsequent numbers seem 'good', and my high-level waterfall.

I'm usually the pessimist here, but in my quick perusal of the revised POR, isn't this POSTIVE for P's?

Raising the WMI portion of the second tax refund from 40% to 68.5% ADDS 700 million to the estate (less 150MM from some other crap, but still).

How is this negative for P's? Clearly I'm missing something because for the first time in weeks I think these are once again UNDER valued.

This, and we now have the risk of a self-fulfilling prophecy. This is the first time I've been involved in a post-BK, and I'm certainly learning a lot. However, not expecting to make much money at this point.

The market seems to be pricing to a mid-single digits recovery for P's. I still hope for .10 or better, but market activity alone makes me resigned to believe that's now upside not base case.

As folks move on, new players move in with a basis of .30. They will be thrilled to get a nickel or 7 cents in a matter of a few months. That is how it becomes self-fulfilling.

A little game-theory would have helped me several months back (maybe could have seen that coming), but this has been fascinating. I'm in to the end due to a trading restriction, so I just need to ride it out!

I don't have a strong opinion about yesterday's decision. What bothers me though is the persistent trend on these boards that for weeks the groupthink proclaims that event x will be good for equity. Then, when event X does not happen, the VERY NEXT DAY, well lo and behold actually THAT'S good for equity. This happens over, and over, and over. Some people REALLY need to step back and think about whether they've fallen in love with this position.

The reason these haven't made a move is because allowing the shareholders to have a meeting does not on it's face increase the recovery that P's will see. Whatever assets WMI currently has are the same today as they are yesterday.

That said, yesterday's decision WAS good for P's. It basically had the effect of re-widening the bookends of potential recovery (which had narrowed in past weeks), and certainly did not make it any easier for the debtors to wrap this up quick. So in an indirect way, the chance fora higher payout rose yesterday (i.e. the debtors are more incentivized to deal). However, it also had the likely effect of pushing any recovery WAY out in time. There is a time value to money, and in my opinion the market is telling us that it does not (yet) think the possibility for higher recovery outweighs the possibility of having to wait many months (or years) to get it.

If I could pay 4 cents to get a certain 10 cents in 90 days, or pay 4 cents to get the CHANCE for 20 cents in 2 years, I'm honestly not sure which way I would go.

That is probably true. I don't think there is a 'direct' relationship between any claims of fraudulent lending and P's recovery.

That said, I think the counter-argument would be as follows: if you assume the fraudulent lending argument has merit, and if the bankruptcy proceedings start to look bad for JP Morgan, they would almost CERTAINLY use the fraudulent lending argument to justify why their purchase of WMB's assets was at fair value. They would simply tell the judge, "your honor, everyone knows that every bank in America was making a bunch of bad loans. It would have been completely stupid to buy these assets at prices that assumed they were good loans. That's why we got what 'appears' to be a bargain basement price. At the time it appeared there was a LOT of risk in buying this stuff."

I'm not saying that argument would fly, but that's what it would be. And if it were successful, could, in theory, keep JPM from kicking more into the pot that would theoretically enlarge the bankruptcy estate.

Exactamundo. That's the value play here.

Wrong. If WAMU is guilty of fraudulent lending, and that in turn drives down the value of the company (note: I'm not inferring that this is a cause and effect relationship), the equity would absorb the hit. In theory, I suppose you could sue individuals responsible for the fraud (assuming they have assets), but if the 'company' is at fault, the equity holder, as the company owner, takes any associated value hit first.

Think about it: who would the equity holders recover value from?

You're question speaks to a suspicion I have in general about a lot of people that buy equities: at the end of the day, they don't really 'get' what they are buying. Whether you intend to or not, when you buy equity you are willingly standing up and saying, "I am willing to absorb any loss associated with this company before any other stakeholder in exchange for potential higher upside." 'Any risk' includes a crummy business plan, bad products, lousy management, or the effects thereof.

If management does a crummy job, too bad. You can vote to fire them at a shareholders meeting, or sue them individually for fraud in this case, but you willingly took on the risk that they might do something stupid. If you're not willing to take that risk, don't buy equity.

Anyone up for suing Killinger for making fraudulent loans? Didn't think so.

Neither is 'really' moving at all.

Preferreds will trade on prospects for recovery. Not on hot air spouted in congressional hearings. Since there is no news on prospective recovery, no real movement, contrary to predictions on this site.

Commons move more simply due to volume. Any real money has discarded the commons, so small buyers and sellers can move the price disproportionately on low volume. They get excited about some headline they read on CNBC, and buy a couple thousand shares. Up goes the price. This phenomena is less pronounced with the preferreds.

I predict it won't make squat of difference. This will move on recovery news only.

LOL, makes no difference to me, but consider: the guy that tells anyone that questions his dogma a 'freakin joke',

or FACTS:

Note 5: Investment in Subsidiaries


WMI’s investment in subsidiaries represents the book value of WMI’s subsidiaries, including WMI Investment. This balance does not represent the market value of these entities.

You'll find that on the very next page after the 3/31 MOR balance sheet.

Got it. I guess that guy TOTALLY deserved to be told his post was a 'freakin joke'.

If your referring to the WMI Investments sub (which is valued at around $900MM), for the umpteenth time it IS included in the Investment in Subsidiaries line on the MOR balance sheet. Read the notes to the balance sheet. It is explicitly called out as being included.

Umm, not seeing how preferreds get paid is EXACTLY the conclusion a rational person would come away with if they haven't 'delved into' and has, say, merely read press accounts.

The only 'freakin joke' is your knee-jerk response to someone that honestly asks why they should consider WAMPQ.

That's a sure-fire sign that you've fallen in love with your position, and can't be bothered with anyone that questions your 100% rock-solid conclusion that definitely predicts completely accurately that this will undoubtedly be a slam-dunk homerun. You should consider taking some time away from this one until you can regain your objectivity.

Yes, you should be somewhat concerned. It's likely why the P's have traded in such a narrow range. Many on here are thinking two or three steps ahead and concluding (quite logically) that yesterday's developments are positive for equity. That's a valid view point and one I also hang my hat on. That said, it's HARDLY a forgone conclusion that events will unfold as some have predicted here. Looking at the world RIGHT NOW, there is the risk of having another belly at the table to feed which is VERY bad for a cusp security like the P's. Markets hate uncertainty. As uncertainty fades, and a discrete scenario appears more likely this will move hard in one direction or the other. Absorbing that risk in the meantime is why you might get paid big. Comes with the territory.

Umm, equity in WMB is (was) an asset of WMI. If Solomon shows this asset has (had) significant value, there is a fraudulent conveyance case which is the whole point here.

Only because it's been confiscated. If it's awarded to WMI, they certainly can demand a return at their cost of capital. Basically an offset to post-petition interest.

Interesting. As you allude, perhaps the tax receipts have been received into those accounts, explaining the inability to tie them out to GAAP (i.e. you have something in your account that GAAP says might not be yours). Possession is 9/10ths!

(Obviously I'm speculating here...)

The part I'm hanging hope on is "(Investment in Subsidiaries) does not represent the market value of these entities."

The market value could be higher or lower than what WMI shows on it's balance sheet. Generally, though, the balance sheet amounts are low (does lower of cost or market apply to a bank's investment in subs?). Could be WAY low. That would be good news.

Because per the balance sheet notes it's included in "Investments in Subsidiaries"

"Note 5: Investment in Subsidiaries
WMl's investment in subsidiaries represents the book value ofWMl's subsidiaries, including WMI Investment.
This balance does not represent the market value of these entities."

How do you get that? I see 6.928 same as it ever was. Remember: per the note, WMI investment is included in WMI "Investment in Subsidiaries"

Yeah, I understand that. Just pointing out it's yet another country heard from. My understanding of the situation has left me with the belief that the tax refunds are rightly the property of WMI. However, in the real world of negotiation, etc., I'm not making any hard predictions of how much we'll actually get. I DO think it will be more than was proposed in the 3/12 'agreement', though.

Have they all been received now? (I don't know) Also wouldn't they have accrued for them?

yes i agree, but they haven't been on the MOR balance sheet to date, i'm not sure why a 'non-deal' would cause them to suddenly show up.

Nope. The tax settlements are still in dispute. The FDIC's objection to the POR doesn't mean they automatically go to WMI, it just means the settlement as detailed 2 weeks ago is likely null and void.

Also, the objection of the WMB bondholders likely means they are going to claim the tax refund is an asset that should be distributed to the creditors of WMB, not WMI.

Still a lot of legal wrangling to go before these will show up on anyone's balance sheet.

Is this all that good, though? I'm sure the WaMu Bank Bondholders position is that the tax refund is the property of WMB, not WMI. Potentially not particularly helpful to WMI preferreds (other than from the standpoint anything bad for JPM is good for WMI).

The devil you know vs. the one you don't

This is great news. Not a 'result' per se, but a terrific indication that the pendulum might be swinging.

The judge wouldn't just be 'tacking on' something extra because she feels like it.

WMI has assets. It also has liabilities. The holders of those liabilities have different rank in seniority. Because the more senior creditors rank first, the whole notion of bankruptcy recognizes that they are not incentivized to maximize value to everyone. Creditors senior to class 19 (preferreds) don't care if WMI's assets are actually worth 9 billion, or 15 billion or whatever. They just want to get 7 billion for the assets so they are made whole. They want to fire sale this, get it over with and get their check.

That's precisely why there is a judge. To ensure the resolution is to the benefit of ALL CLASSES. If the classes senior to preferreds only need $7B, but the judge believes WMI is worth $10B (because maybe the EC convinces her), she WON'T allow any distribution to occur that won't get that $10B.

She's not just 'tacking on'. She's ensuring the estate generates it's full potential value. See the difference?

While that is definitely a theoretical possibility, the whole purpose of a bankruptcy court is to ensure value is maximized to the benefit of all creditors. In theory, the most senior creditors just want to get this over with: if they are owed a billion, they would be willing to accept a billion dollar recovery even if the estate is worth 10 billion because it gets them their money back and to hell with anyone else.

You just have to be confident the EC and judge agree there is more value, and ensure it is realized to the benefit of the lower classes.

This is an interesting take.

That's almost certainly what will happen.

Yes, the lack of FDIC support was buried in the WSJ article, and is VERY interesting.

I agree with your point that it would be silly for the judge simply to accept this given the recent emergence of the EC. She will give them time to evaluate the circumstances.

However, at the end of the day there has to be assets to cascade down the waterfall. There are three potential 'places' to get them:

1) The B/S is understated. Quite possible, but difficult to quantify. This is Solomon's job.
2) Re-negotiate the Tax Refund. Very Possible, and relatively painless for the FDIC and JPM
3) Litigate. Unlikely. This will take years, and has a very uncertain outcome.

So that said, if the EC does it's work/negotiation and concludes that the assets support a 20 cent recovery, they will almost certainly take it rather than launch themselves into a black hole of litigation. No one will view 'Rosen as a hero' (or a goat). They won't give a crap about him either way. The EC lawyers probably have drinks with him after court each day. If folks here are savvy investors they will coldly calculate their best case scenario based on facts, not emotion.

Honest question: on what basis would the judge not sign off on this? People say it's 'a joke', etc. but it seems pretty straight forward. The POR itself is unremarkable and non-controversial, it simply calls for a waterfall down the capital structure as the assets claimed currently would allow.

I don't think the judge will sign off either, but not because of any problem with the POR. It will be because she has doubts about the assets to be distributed (whether understated, undervalued, or fraudulently conveyed away). She won't 'reject' it per se (and certainly not simply because it leaves commons out in the cold as the die-hards on the Q board hope), but she will allow time for her to be convinced as to whether or not distributing the value as currently stated is fair, or whether litigation might change the equation.

I see those as two separate issues. The POR is not really debatable. The value of the estate is.

You keep emphasizing that prefs will get cancelled. Yeah we get it. Of COURSE they will be cancelled. In the absence of litigation, everyone knows there are simply not enough assets to make pref's whole. They are looking at a fractional payout. Thus they WILL GET CANCELLED. DUH.

However, that does NOT mean they receive ZERO and get cancelled. The bet for people that are in these at a couple cents on the dollar is that they could receive 10 or maybe even 20 cents on the dollar. That would be a VERY SUCCESSFUL outcome even though it would culminate with cancellation.

Yes, there is post-petition interest. However, the balance sheet assets are almost certainly stated low. Maybe even significantly low. In particular, the INVESTMENT IN SUBSIDIARIES is NOT a market value. I haven't done the analysis, but you might have noticed that the equity markets have rallied hard in the past year. This value could be DOUBLE OR MORE the $1.4B on the balance sheet. It could also be LESS. Who knows?

Additionally, in order to make this go away, the pot could be sweetened (it would be painless to re-split the tax refund) in order to spare the FDIC and JPM embarrassment.

The importance of the judge and EC is now to see that the value of these assets are maximized, and that the unimpaired creditors do not just fire sale them to get their money fast. Additionally, the EC can threaten to litigate in order to try and get the pot sweetened. That's the game.

This has always been a cusp security whose value swing wildly based on the potential outcomes. It might be out of the money, it could be worth 20 cents. If you're in at 5 cents, that's not a horrible up/downside (at least if you haven't invested your kids college education).

2 positives:

An explicit statement that "it's possible, but not certain" that preferreds see a distribution.

The FDIC is not on board with the settlement. They realize they have big liability.

Well, how about forking over another billion or so of tax refunds?

With the stated split of the tax refund, there should be a little something left over after paying all the creditors.

Yep, that's what I meant: all of 'em.

Now there are wide error-bars so that could be wrong but it certainly isn't clear from the numbers that it's NOT correct.

My guess is that to make the EC go away, the tax refund split gets a little more attractive. P's and K's recovery rises a bit more.

Yes. But as other point out, it is subject to section 23.1.

Basically, read it like this: We think there's a little money for P's. But they need to agree to go away if they want it.

Well, it's highly likely that P's are in the money at least to some extent. The Plan indicates they are a impaired class subject to distribution, and thus a voting member to the plan...