WAMUQ: JPM $29 Billion WaMu Windfall Bloomberg Article ...
JPMorgan $29 Billion WaMu Windfall Turned Bad Loans Into Income.
2009-05-25 23:01:00.8 GMT
By Ari Levy and Elizabeth Hester
May 26 (Bloomberg) -- JPMorgan Chase & Co. stands to reap a
$29 billion windfall thanks to an accounting rule that lets the
second-biggest U.S. bank transform bad loans it purchased from
Washington Mutual Inc. into income.
Wells Fargo & Co., Bank of America Corp. and PNC Financial
Services Group Inc. are also poised to benefit from taking over
home lenders Wachovia Corp., Countrywide Financial Corp. and
National City Corp., regulatory filings show. The deals provide
a combined $56 billion in so-called accretable yield, the
difference between the value of the loans on the banks’ balance
sheets and the cash flow they’re expected to produce.
Faced with the highest U.S. unemployment in 25 years and a
surging foreclosure rate, the lenders are seizing on a four-
year-old rule aimed at standardizing how they book acquired
loans that have deteriorated in credit quality. By applying the
measure to mortgages and commercial loans that lost value during
the worst financial crisis since the Great Depression, the banks
will wring revenue from the wreckage, said Robert Willens, a
former Lehman Brothers Holdings Inc. executive who runs a tax
and accounting consulting firm in New York.
“It will benefit these guys dramatically,” Willens said.
“There’s a great chance they’ll be able to record very
substantial gains going forward.”
When JPMorgan bought WaMu out of receivership last
September for $1.9 billion, the New York-based bank used
purchase accounting, which allows it to record impaired loans at
fair value, marking down $118.2 billion of assets by 25 percent.
Now, as borrowers pay their debts, the bank says it may gain
$29.1 billion over the life of the loans in pretax income before
taxes and expenses.
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P.S. ...
Very interesting timing of
this Article?
