Mr Cooper Group Inc (COOP)

[deekshant]

The Plan, The Trade Off and DOJ Settlement

This is a long story which was in reply to what “patience360_han”, a well respected board member from boardpost.net said that caught my attention and helped me write this piece. It’s a far fetched thought and nothing has been proven yet, so, I am just sharing. Please bear with me and do read it in full. Thank you

Patience360_han--Also think about our own WMI bankruptcy experience, for a casual reader of the case, can he find a clue or references to the insider trading charges in the approved plan and Judge's final ruling? If he followed the case as closely as we had, he would know those wrong doings existed. But in the final settlement plan and ruling, they're nowhere to be found. It's important to understand how the settlement terms and languages evolved over the months and years.

How did Insider Trading get settled and what was the trade off.

SNHs strategy was a multi staged, multi pronged and a multi billion dollar recovery with no end in sight. It was a whole new level of playing field beyond us commons to comprehend. Their recovery was not just limited to being a creditor but a lot, lot more. In the realm of things, Federal Judgement Rate and NOLs were the weakest links and a tactical gambit within “The Plan” that they had to let go when left with no choice.

Let me opine on what Nate said and didn’t say, and address the multi-stage and multi-prong aspect of it.

“Settlement note appear to hold approximately 70% of the Piers claims. Coincidently, the GSA and Plan has been crafted, working closely with SNHs such that Piers claimants stand to recover approximately 73% of the claims. ”

“As a further example, Appendix E demonstrates historical dates and corresponding prices of WMI notes, a representative sample of which can be seen to have traded at or above par since Feb 2010, approximately one month before the GSA and POR became public information…”
www.kccllc.net/documents/0812229/0812229101123000000000010.pdf

So, when bonds were trading at or above par then, why didn’t they sell and move on, when their recovery through GSA was at 73%. Unlike the 100% immediate recovery in the open market, 73% recovery would have taken at least 3 months to resolve with no guarantee. So, was it for the NOLs, as there were only two types of recoveries in-store for them. In my opinion, thats what you are made to believe but is not the whole story.

Look at the following, what does it tell you.

“As demonstrated elsewhere, whereas the SNHs already stood to reap windfall profits by virtue of their shrewd investment in prepetition and post-petition claims”

Let me summarize. They made billions initially by shorting the stock prior to Bankruptcy. Then bought bonds on the pennies. Got a 100% recovery confirmed but were not done yet.

“upon information and belief, SNHs with actual and constructive knowledge as to how a waterfall analysis would affect the various creditor classes and interest holders crafted the Plan and GSA (strategically valuing and non-valuing assets and claims or gifting assets without a specific purpose) merely in a transparent effort to create a plan accepting impaired classes”

“In yet the most striking example of the uncanny timing of the market reaction in advance of the GSA and POR becoming public information demonstrates the accumulation of Piers claims (e.g., WAHUQ securities) relative to other material events surrounding the timeframe of Oct 2009 to March 2010. In a further example, note in Appendix F the heavy accumulation of WAHUQ CA. March 2009”

“Recall again, that the US Trustee, Joseph J. McMohan Jr., identified exigent circumstances in its motion on Dec 16, 2009. What’s more, note how Centebridge (of the SNHs) was able to handily scoop up its last WAHUQ acquisition off the backs of frenzied retail investor as Debtors through Debtors counsel announced in open court and during market trading hours on March 10, 2010, the heretofore publicly undisclosed terms of the GSA”

“The purpose of the predecessor section 1126(e) was to “prevent speculators who had acquired claims or stock at depressed prices from exercising unfair veto power over the debtor’s reorganization and to keep creditors and stockholders from securing advantages by refusing to vote in favor of a plan not are not cast, procured, or solicited, or in accordance with the provisions of the Bankruptcy Code…”

“The disclosures heretofore submitted by the SNHs in respect of rule 2019 fail to comply with rule 2019(a) inasmuch as a) any supplemental statements were not filed promptly b) any of said disclosures fail to adequately disclose the nature and amount of the claim or interest and the time of acquisition thereof insofar”

SNHs with prior knowledge, how the waterfall analysis would affect them, strategically valued and non-valued assets and claims and gifted assets without specific purpose. They even scooped shares (e.g., WAHUQ) in broad daylight, once it was confirmed that next class in line within the structure was the recovery point, thus holding intact their claim as an impaired class for plan confirmation purposes. For some reason, if the values for assets and claims were to become known in time which could have jeopardized the plan, they probably would have moved to the next class in line such as WAMPQ. So, not only would they have recovered 100% by shorting the stock initially, 100% on WMI notes, 100% on WAHUQ, but by moving to next class in the waterfall structure, SNHs would have kept their claim intact as an impaired class for plan confirmation purposes. They were no different than us, were doing exactly what we were doing. i.e. hedging the risk, with one exception, they knew exactly where the buck stops as they were the ones who controlled it.

“The article is especially seasonable and appropriate here, insofar as derivative contracts, credit default swaps, hedging instruments, insurance contracts and the like ? are the devils playground for parties comprising SNH and JPMC- fact presumed to be so far beyond contention that it is capable of judicial notice”

“Recall in the objection to motion to compel, Supra at n 34 (case docket: 1444), WMI noteholders group upon information and belief, advocated that keeping this motion in the dark was a desirable protection of trade secrets, or words to that effect”

“For example, whereas traditionally bad faith can be inferred from the timing of securities trades, which could be covered by Rule 2019, for example, the existence of such credit default swaps, derivatives or other hedge fund instruments or insurance contracts bearing on the value of the respective claims or interests are outside the court record. In other words, is it possible for a creditor acting on behalf of a class such as SNHs to profit outside the bankruptcy by betting against his class members”

“It can certainly be argued that the above scenarios are merely hypothetical. However, the article describes the problems with voting and confirmation in the instance of “credit default swaps (where) the party bringing the motion to have the vote designated may argue that the creditor’s sole motivation was not based on its interest as a creditor in the bankruptcy case, but instead rests with the possible financial gains under credit default swaps (i.e., financial gains under a third-party agreement constitutes an ulterior motive)”

Recovery was not just limited to bankruptcy but was way outside of bankruptcy as well.

Who negotiated the plan, “SNHs”. What were they doing negotiating with JPMC. And, what gave them this leverage that allowed them to sidestep FDIC and step-in their shoes. Or, was there more to it. Were they betting against their class members outside of bankruptcy on derivative contracts, credit default swaps, hedging instruments, insurance contracts…. based on their discussion with JPMC and both were profiteering from it. Our conclusion was long drawn earlier, that they’re all in cahoots in the name of “The Plan” with blessings from FDIC . What we didn’t know was the extent to which they could go. May be, we should look at the timing of the executions. Oh wait! these are third-party agreements that fall outside the jurisdiction of the Bankruptcy Court that are accorded special protection under the trade secrets.

Sent: Wed Aug 06 17:32:482008

John Reich to Sheila

"If in fact any meetings or discussions have already taken place by the FDIC with either JPMC, Wells Fargo, or any other entity, in any capacity in which WaMu was even mentioned, I would like to see a copy of the signed confidentiality agreement signed by the bank – required in any resolution scenario before an institution is told the name of the failing bank."

Sheila to John Reich
"Art talked with Scott about making some discrete inquiries to determine whether there are institutions which would be willing to acquire it on a whole bank basis if we had to do an emergency closing, and on what terms."

So FDIC already started the inquiries by that time John Reich sent the above message to Sheila.FDIC must be having all the institutions they talked to and confidentiality agreements with those institutions.
dealbreaker.com/2010/04/sheila-ba...”

Under court deposition, Sheila Bair went on record to say she advised bidding bank JPMC about the US Government’s intention to seize solvent Washington Mutual two weeks prior. Begs the question, did JPMC, along with GS short the stock leading to its demise. Or, was this exactly what FDIC wanted, so it could seize the bank. Wamu’s destiny was already written way in advance before it unfolded. Bidding and subsequent sale was just a procedure to formalize the process and make it legal.

When your fellow colleague opines, the secret code unheard off, yet understood is enough to know what is what. JMW hint through the 10 billion recovery was an indication of that. Insider trading was evident and SNHs were caught red-handed. SNHs couldn’t alter the course and if they did then why now.

OTS Sees FDIC Collusion In Helping JPMC Buy WAMU
This excerpt is from John Reich's (OTS) email to Sheila Bair (FDIC) on 8/6/2008 (p264-265) says it all

"The government should not be in the business of arranging mergers - particularly before they are necessary, and we are not at that point in WaMu's situation.”

This excerpt from John Reich's (OTS) email to Sheila Bair (FDIC) on 8/8/2008 (p260).
"In my view rating WaMu a 4 would be a big error in judging the facts in this situation. It would appear to be a rating resulting from fear and not a rating based on the condition of the institution. WaMu has both the capital and the liquidity to justify a 3 rating."
hsgac.senate.gov/public/_files/Financial_Crisis/041610Exhibits.pdf

Did it matter to JPMC if liabilities were with FDIC. Or, did it matter to SNHs if they could address the issue of recovery later on with FDIC. What was FDIC doing all this while. Why were they so tight lipped. Was it that she stepped over the line. Were there some missteps along the way. Did they leave a trace behind. Gag order speaks for itself. Too many loopholes forbidden from public eye in order to save face, all, in the name of justice.

You play along as long as everyone’s purpose is being well served. But, when one tries to pounce on his own, the real crime gets known. Just when she thought there was a closure, her ignorance lead her to believe that the can of worms will subside. What happened, JPMC said as per the agreement, liabilities are to remain with FDIC. The high headed Shiela, overlooked what her own fellow colleague from OTS was saying about Wamu. Only when, she was done with the seizure and subsequent sale, the shining star upon being duped probably came to her senses in time. Can’t really blame her, you see, she was in love with Jamie. Long Beach was well marketed to the inner circle with the likes of Jamie that could call for action on Wamu. Highlighting Long Beach and making the whole case against WAMU, when its Tier 1 capital ratio was more than that of JPMC served the needs of those panic stricken folks, who feared how the worst would affect them such as FDIC and JPMC. History was written, damage was done and there was no going back. Only question was how to fix it.

And, how did the current situation absolve FDIC of its liabilities. What makes FDIC get to say that it incurred “Zero” loss on seizure. If you say FDIC has no liabilities towards WMI, then, thats just a part of it. What about WMB liabilities. Deutsche Bank claim is pending resolution. If SNHs had taken over, then, how would it have helped fdic over claims. Are we saying that FDIC gave a 300+ billion dollar bank to JPMC with 4 billion undisputed cash just to inherit a 10 billion dollar claim from Deutsche Bank. Do you see the joke in this. It was prudent to understand the complexity, the inner workings and its aftermath effects before taking a hasty decision like the one they took with respect to seizure.

FDIC could have sold WMB with a token of love as initial payment of 1 dollar, contingent upon x, y, z, conditions. Any subsequent claims would have required exhaustion of administrative remedies under FIRREA before a judicial review was possible. Unfortunately, the document was not upto the mark. Among other reasons, it was the lack of completeness, its ambiguity, its vagueness, its inability to address the aftermath issues - that were all missing in the agreement. Bottomline, they couldn’t comprehend the complexity involved.

Resolution resides within the natural transition. Consolidation serves the needs in times of distress. What would have happened had there been no bankruptcy. IMO, we would have merged or been acquired by another bank similar to what happened with Wachovia.

Good or bad, the path was laid out and there was no going back. Moving forward was the only thing that make sense. Intention was to trigger a similar transaction in nature like what was done to Wachovia. And, to make it all work, FDIC needed a solid footprint to reign in on JPMC through a definitive document.

Call of nature in dire need.
How did DOJ help. Take note of who all did the RMBS Working Group comprise of that lead to DOJ settlement.

“The RMBS Working Group is a federal and state law enforcement effort focused on investigating fraud and abuse in the RMBS market that helped lead to the 2008 financial crisis. The RMBS Working Group brings together more than 200 attorneys, investigators, analysts and staff from dozens of state and federal agencies including the Department of Justice, 10 U.S. attorney’s offices, the FBI, the Securities and Exchange Commission (SEC), the Department of Housing and Urban Development (HUD), HUD’s Office of Inspector General, the FHFA-OIG, the Office of the Special Inspector General for the Troubled Asset Relief Program, the Federal Reserve Board’s Office of Inspector General, the Recovery Accountability and Transparency Board, the Financial Crimes Enforcement Network, and more than 10 state attorneys general offices around the country.”
www.justice.gov/opa/pr/2013/November/13-ag-1237.html

Organizations have a very myopic view of the surroundings, outside of their area of expertise, and so, usually confine themselves to their own domain. Only a task force such as the one created who had the powers to be could have unraveled the truth. So, DOJ settlement cannot be viewed through the 13 billion dollar settlement amount, but, its needs to be seen from an eye that produced incriminating evidence against JPMC which lead JPMC to give in.

What did DOJ settlement do to help. Read inbetween the lines, the settlement basically gave FDIC a definitive document to move forward with. First, it established that JPMC did not become a successor-in-interest to WMB.

"No Acknowledgement or Admission: Nothing in either this agreement or the DOJ Agreement shall constitute an admission or imply that JPM or any of its subsidiaries or affiliates became successor-in-interest to Washington Mutual Bank, Wamu Capital Corp., Long Beach Securities Corp., Wamu Asset Acceptance Corp., or assumed any particular liability of Washington Mutual Bank, Wamu Capital Corp., Long Beach Securities Corp., Wamu Asset Acceptance Corp., when JPM purchased the assets and assumed certain liabilities of WMB pursuant to the P&A Agreement date Sept 25, 2008 between JPM and FDIC in its corporate capacity and its capacity as receiver for WMB"
www.justice.gov/iso/opa/resources/51720131119202421482972.pdf

Second, it partially secured the interest of FDIC against Indemnification Claims

"Release of all Indemnification Claims Against FDIC Corporate and Against FDIC as receiver for WMB: JPMC hereby irrevocably waives any right that it otherwise might have to seek (and in any event agrees that it shall not seek) any form of indemnification, reimbursement or contribution from the FDIC in any capacity, including the FDIC in its Corporate Capacity or the FDIC as receiver to Washington Mutual Bank, for any payment that is a portion of the settlement amount set forth in paragraph 1 of the DOJ Agreement or of the Consumer Relief set forth in paragraph 2 of the DOJ Agreement (total 13 billion), including payments to the United States, the States (CA, DE, IL, MA), FHFA, NCUA, FDIC, and New York made pursuant to paragraphs 1 and 2 of the DOJ Agreement. "
www.justice.gov/iso/opa/resources/51720131119202421482972.pdf

Third, the settlement did not absolve JPMC from facing criminal charges

"The settlement does not absolve JPMorgan or its employees from facing any possible criminal charges."

"This settlement resolves only civil claims arising out of the RMBS packaged, marketed, sold and issued by JPMorgan, Bear Stearns and Washington Mutual. The agreement does not release individuals from civil charges, nor does it release JPMorgan or any individuals from potential criminal prosecution. In addition, as part of the settlement, JPMorgan has pledged to fully cooperate in investigations related to the conduct covered by the agreement."
www.justice.gov/opa/pr/2013/November/13-ag-1237.html

Forth, and most important, FDIC reclaimed the title of being the successor in interest. May be, just a conjecture at this point.

“Certain FDIC Claims not released. The FDIC, in any capacity, shall not release, and expressly preserves fully and to the same extent as if the Agreement had not been executed (provided, that this provision shall not be construed as an acknowledgment that any such claims or causes of action exist or are valid):

a) any claims or causes of action against JPMC or any other person or entity for liability, if any, incurred as a maker, endorser or guarantor of any promissory note or indebtedness payable or owed by them to the FDIC, any financial institutions in receivership, other financial institutions, or any other person or entity, including without limitation any claims acquired by FDIC as successor in interest to any financial institutions in receivership or any person or entity other than financial institutions in receivership, excluding for avoidance of doubt any claims expressly released in the Agreement;

Check this out, they even included Libor in this

b) any claims or causes of action against JPMC or any other person or entity relating in any way to the London Interbank Offered Rate;

c) any claims or causes of action arising under a contract governing the sale, transfer, or servicing of mortgage loans or pools of mortgage loans (including, without limitation, and for the avoidance of doubt repurchase claims, put-back claims, and any other claim under any Pooling and Servicing Agreement, Assignment and Recognition Agreement, Mortgage Loan Purchase Agreement, or other substantially similar agreement), where neither the Failed Banks nor the FDIC, in any capacity, are signatories, relating to any breach or violation of any representation or warranty as to loans originated, purchased, acquired, transferred, securitized, or collateralizing the RMBS certificates identified on Exhibit A, or any other securities, and that could result in an economic benefit to FDIC-R at the expense of JPMC;

d) any claims or causes of action by the FDIC in any capacity in any capacity other than as Receiver for the Failed Banks;

e) any claims or causes of action against any person or entity not expressly released in this Agreement.”
www.justice.gov/iso/opa/resources/51720131119202421482972.pdf

You needed to dig in deeper to know what is what before you decided to cover it up or lay blame or try to resolve it. It was less important to nail the SNHs and Jamie, and more important to identify who all were involved, the root cause, how was it brought about, what could be done to rectify it, and how to prevent it in future.

If FDIC is able to transfer the liability over to JPMC and made to pay, if the Govt is able to avert the financial crises, if the investigation is able to identify the root cause and eliminate it, if the departments are able to address the loopholes within the rules and regulations that lead to the crisis, if shareholders are able to get what was there’s in the first place, then, I think the purpose, goal, time and effort... has been well served.

But, how was it triggered from within. Folks hear the word bankruptcy going around. Enquiring minds who wanted to profit from inside info got alerted. Those in the know how, wanted to cash in on it. They saw an opportunity and jumped in.


[quote author=tdmd99 link=topic=819.msg7422#msg7422 date=1333679227]
www.ghostofwamu.com/documents/HearingTranscripts/08-12229-20120217.pdf

1 Given the situation, I think it’s all the more
2 remarkable that we’re here today before you with a
3 consensual plan that distributes meaningful recovery to the
4 WMI shareholders.

Does one really need to explicitly associate this to LT to make a point on reasonable recovery. The context suffices the point with respect to WMIH but doesn't stop there. Its not an absolute, which cannot be extended to LT for recovery purposes.
https://www.boardpost.net/forum/index.php?topic=819.15

Bottomline, there was enough in the pot for everyone to share. I was right when I said that the core still resides in certainty that lead to an agreement. With NOLs, recovery was unknown, uncertain and something that one had to work towards. With LT, recovery was unknown but certain with a question, what if the amount of recovery was bigger than assumed. It was the cap removal on LT and not the 5% tradeoff with respect to LT that lead to an agreement.

Indeed, we are just simple minds who confine ourselves to the number game and what’s in it for us, who care less and lack understanding about the background that matters the most. In my opinion, Nate only addressed one side of the story. Either he couldn’t or choose not to address the other side, as it was not evident and shown in paper to exist.