I want to first apologize to AZcowboy for misquoting him by loosely using the word "capped" for the preferreds.
Azcowboy, I think the exact intrpretation of your claim is:
1)75/25 split on what assets were originally available to wmi at confirmation plus wmih
2) all assets coming back from safe harbor through wmiic at some point will first satisfy face plus interest to date for the preferreds. any leftover after that, goes to commons.
Is this correct?
Second, I must admit that if I make any money off of this bankruptcy it is truly out of luck. I always had a speculative hunch from the beginning that wamu was a victim of paper losses from the mark to market fiasco of 2008. I knew their portfilio had a healthy interest profit margin and their subprime holdings were only around 5% of the portfolio. however, when the whole market started panicking, there was no longer efficient pricing for any of the MBS, the credit agencies like Moody's decided to cover their asses and started downgrading everthing across the board. throw the baby out with the water. unfortunately for wamu, as a savings and loan, most of its income comes from holding its own portfolio...this meant a potential but improbably large paper losses for its portfolio. these credit downgrades, then causes panic in its deposit base that started a bank run. so when the last bank run resulted in $16 billion withdrawn in about a week, FDIC also started to panic...because wamu only had about $20 billion dollar liquidity on hand. Any further bank runs may cause wanu to recapitalize by liquidating parts of its portfolio which could further exacerbate the panic in the market and further drop the MBS prices across the board...in short the whole MBS market may become worthless with fictitious paper losses. These fictitious MBS paper losses would then turn temporary liquidity problems like bank run to permanently dangerous insolvency disasters for the banks. If Wamu started liquidating to meet the cash crunch from its bank run, it will soon find itself selling its portfolio at a big discount to the point that its asset value (loan portfolio) will become less that its liability (deposit base)...from liquidity problem to insolvency disaster. Now this will truly wipe out FDIC because its number one priority is to protect the deposit base. That is why it quickly sold off the bank to JPM and placed the portfolio under safe harbor protection to stop thay nuclear chain reaction from liquidation.
All these years, I thought of project west, and sheila bair sleeping with dimon, and giving him throat cancer....was just misplaced anger. I want to believe in a conspiracy but the truth of the matter is that sheila might really end up being the unintended hero. Looking back now, I think she might have saved the whole banking system and ultimately wamu shareholders.
I am now 99.9% confident that JPM did not get Wamu portfolio because of safe harbor protection that was critical from keeping the whole 2008 panic from going nuclear.
I dont know what part of that portfilio is shareholder equity in 2008. My guess is 0 to 30 billion. But that does not matter. The lion share of our value is guranteed by the interest spread between the portfolio and its liability, the deposit base that JPM acquired.
The portfolio must pay back the deposit base at JPM for principal plus its interest but it gets to keep the profit from the interest spread while its doing it. This interest spread was around 2.8% on 286 billion portfolio in 2007. Obviously, that margin may have changed (could be even better since deposit base interest have tanked since 200u), and some of the portfolio may have been bought back early but in the end I think its safe to assume around 50% of potential interest profit from that 2007 published spread...which comes out to around $60 to $80 billion.
I suspected this amount of potential hidden value from the size of the portfolio and the interest spread in 2008 but I had no idea whether commons would ever get it back. The blind faith speculation I made was based on Mike Willingham. He was confident enough to hold only commons. He didnt hold any preferreds to hedge his bet. After reading through all the passionate postings on the board, that I was going to bet on Mike. If this bet pays out like what AZcowboy is claiming, I am truly a Lucky Panda.
