Traders Cooperative

[Joe Stocks]

Anyone watching what is going on with Washington Mutual (WAMUQ) and the FDIC?? JPM certainly did get a great deal on WM and is reporting huige profits from it. I think the shareholders have a case to be pissed. Don't know if there is a trade here or not. Probably not, I acn't see this helping the common, maybe the preferred and any debtholders - probably more the bondholders. I have no interest in taking a position. Just interesting to see how this plays out.
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The text below is quoted from WMI's response to FDIC's motion to dismiss the WMI vs FDIC lawsuit in D.C. court (filed 7/16/09):

WMI "alleges that the FDIC sold the assets of WMB to JPMC for less than their liquidation value [fair market value]. While the FDIC asserts that this claim is merely “speculative,” the publicly available facts indicate that WMB’s assets were worth substantially more than the $1.88 billion JPMC paid. Indeed, in less than one year from the acquisition, JPMC already has recognized a profit from this transaction far in excess of the purchase price. The FDIC breached its irrefutable obligation to maximize the value of WMB’s assets.

Now the FDIC seeks to avoid accountability by shifting the loss onto [WMI]. The Federal Deposit Insurance Act (“FDI Act”) and the Just Compensation Clause of the Fifth Amendment both require that [WMI] be compensated for the FDIC’s failure to pay to [WMI] their portion of WMB’s liquidation value.

As a separate but related issue, the FDIC also took possession of property that WMB did not own or that WMB was required to return to [WMI]. Because that property was not property of the receivership estate, the FDIC has converted it. [WMI] also must be compensated for this conversion."

"The FDIC seeks to have this Court interpret the law in a manner that grants the FDIC unlimited discretion, completely immunizing its actions from any review, and unlimited power to resolve a bank in receivership – without regard to the actual powers and duties Congress provided in the FDI Act...The FDIC’s position is fundamentally lawless and should be rejected. The FDI Act required the FDIC to maximize the value of WMB’s assets for the benefit of [WMI] and the receivership’s other claimants. The FDIC failed to do so..."

"The FDIC attempts to justify its breach...by asserting that the sale to JPMC resulted in no cost to the deposit insurance fund. Because WMB’s assets were worth significantly more than its deposit liabilities, selling WMB for more than those liabilities was neither difficult nor laudable. Indeed, it suggests a motive for the FDIC’s breach. In the ordinary case, a bank placed into receivership is sufficiently insolvent that its assets are not sufficient to cover its insured deposits, much less the amounts owed to other creditors. Here, however, WMB’s assets substantially exceeded its deposit liabilities, and the FDIC lacked its usual economic incentive to maximize the value of the receivership’s assets. Therefore, the FDIC ignored its obligations to the WMB receivership’s claimants. This Court should not allow the FDIC’s conduct to go unexamined."

"The FDIC argues that [WMI]’s allegation that the FDIC sold WMB’s assets for less than their liquidation value is merely “speculative”"...but WMI’s "allegations are far from speculative. Immediately after the transaction, JPMC projected that the transaction would add $2.4 billion to JPMC’s net after tax operating income in 2009 alone. JPMC expected the transaction to be immediately profitable...JPMC has recently announced that it is now poised to recognize significant gains (i.e., as much as $29 billion), as it recognizes the actual market value of many of the WMB assets it purchased. Furthermore, JPMC recorded negative goodwill in accounting for the transaction – indicating that, immediately upon consummating the transaction that the fair market value of assets acquired exceeded the purchase price. Such negative goodwill is unheard of in a major acquisition. Indeed, the facts surrounding JPMC’s purchase price are sufficiently suspicious that one U.S. Senator has called for an investigation.

Finally, shortly after WMB was placed into receivership, the FDIC attempted to broker a sale of Wachovia, announcing a letter of intent to sell Wachovia to Citigroup for approximately $2 billion. Wells Fargo announced only a few days later that it was willing to purchase Wachovia for more than $15 billion. The fact that Wells Fargo was willing to purchase Wachovia on terms substantially superior to the original deal arranged by the FDIC calls into question the FDIC’s commitment to negotiating the best price for a troubled bank. Indeed, this episode demonstrates the FDIC’s indifference to its obligation to negotiate a fair market price once the deposit insurance fund no longer stands to suffer a loss."

"The FDIC has a duty to maximize the value of the Receivership’s assets when it liquidates the Receivership estate. The FDI Act specifically commands the FDIC to maximize the value of such assets. (“When a depository institution fails, the FDIC has statutory responsibility to the creditors of the receivership to recover for them, as quickly as it can, the maximum amount possible on their claims.”)(“When an insured institution fails, the FDIC is ordinarily appointed as receiver. In that capacity, it assumes responsibility for efficiently recovering the maximum amount possible from the disposition of the receivership’s assets...”.)"

"The FDIC argues that it is not so obligated because the FDI Act requires the FDIC to seek the “least cost resolution” of a failing bank...[however,] maximizing the value of the receivership estate enhances the likelihood that [the FDIC] will recoup the loss to the deposit insurance fund and is therefore consistent with the “least cost resolution” of a failed bank."

Even if the FDI Act did not provide [WMI] with a direct right of action against the FDIC, [WMI] still may recover damages from the FDIC under the theory of illegal exaction. An illegal exaction is money that was “improperly paid, exacted, or taken from the claimant in contravention of the Constitution, a statute, or a regulation.”...The FDI Act obligated the FDIC to liquidate WMB’s assets for their maximum value, and then distribute the proceeds to WMB’s creditors (such as [WMI])...Rather than paying the liquidation value owed to Plaintiffs under the FDI Act, the FDIC transferred that value to JPMC. By doing so, the FDIC illegally exacted money due to Plaintiffs."

"The FDIC sold WMB’s assets to JPMC for less than their liquidation value. One might presume that the FDIC believed that the sale of WMB to JPMC for less than its liquidation value served public policy in some way. However, whether the FDIC had a valid public policy rationale for the JPMC sale is not the issue. Rather, the issue is whether the FDIC can force [WMI] to bear the loss, notwithstanding their property interests in WMB. To accomplish the JPMC sale, the FDIC sacrificed [WMI]’s liquidation rights, shifting money that they would have received to JPMC, to accomplish whatever public policy goal the FDIC thought the JPMC sale served. The FDIC must compensate [WMI] for the property that it took – the difference between the liquidation value of their property interest in WMB and the fraction of that value that actually will be paid due to the P&A Agreement’s sub-liquidation purchase price."

"As the FDI Act itself recognizes, the creditors and shareholders of a failed bank continue to have a property interest in the liquidation of the assets of the bank...The receivership process, similar to the bankruptcy process, is a system to allocate the remaining assets of the failed bank among the claimants of the failed bank...(“As receiver for the failed bank, the FDIC acts much like a trustee in
bankruptcy, marshalling the assets and legal interests of the bank and distributing its assets to creditors, including the bank's depositors.”). When the FDIC sold WMB for substantially less than its liquidation value, it expropriated [WMI]’s property and transferred it to JPMC. That expropriation is a taking of [WMI]’s property for which compensation is due under the Just Compensation Clause."

"For the foregoing reasons, Plaintiffs respectfully request that this Court deny FDIC-Receiver’s Partial Motion to Dismiss and FDIC-Corporate’s Motion to Dismiss."

From a posing on yahoo

http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_W/threadview?m=te&bn=86316&tid=191641&mid=191641&tof=11&frt=3#191641