In paragraph 43 of Ms. Chamberlain’s report, she uses the historical trading prices of WAMU and DIMEZ (Now known as DIMEQ) to support her contention that the market viewed the LTWs as equity instruments and that any impairment to the holdco stock would be viewed by the market to also be an impairment to the LTWs. Specifically she cites the decline in price of WAMU from $9.24 to $2.26 and compares it to the decline in price of DIMEZ from $.355 to $0.13 and on a percentage basis the declines were 75% and 63% respectively. From that point of view I will stipulate that the declines did seem to be in tandem, at that time. Let’s now turn our attention to subsequent events a little further down the time continuum, shall we?
If the price action of these securities in 2008 are to be considered germane to the discussion in November 2010 and if this 2008 price action is to be allowed to support her contention, then should we not also consider subsequent price action to be relevant to the discussion? As we sit here in November 2010, the WAMUQ security trades at roughly $0.05 while DIMEQ trades at $0.40. As I see it, WAMUQ has declined another 98% from the $2.26 level while, curiously, the DIMEQ security has fully recovered and then some. Actually, the current price is a 208% increase from the $0.13 level. 98% decline vs 208% increase. Hmmmm… So what then should we say about this divergence? Isn’t it interesting that WMI and its expert say nothing on the subject. I see it as a half-truth, they stopped the timeline at the point it supports their position and then ignored subsequent events that can only serve to refute the half-baked assertion.
Before anyone tries to make the argument that all of the sophisticated market participants fled the scene in 2008 so all subsequent events can simply be chalked up to a “bankruptcy bounce” (GFY Natasha) let me just offer up that distressed, post petition and post emergence analysts and investors, on the whole, are some of the most sophisticated participants in the capital markets. Why? Because they have to do their own due diligence and because the depth of knowledge they have to obtain to even begin to process and understand the information after they find it is often a daunting task. Distressed investors don’t have the opportunity to rely on the coverage from 20 to 30 analysts to do their research because there aren’t that many operating in the space. You’re lucky if there are even 2 or 3 analysts that cover a distressed name. In the case of DIMEQ, there wasn’t anyone covering this name except for RW Pressprich whom I believe blew the lid off in early 2010. Go look at the chart and you can tell when the word started to circulate. I say all of this to point out that the folks who invested heavily here did so because of many hours of research and many sought legal counsel as well. It is also to say that those who are still in are in for a reason, not just on a whim. So the post-bk price action is meaningful and it is relevant and it should not be ignored so flippantly.
Don’t cut the timeline short in your “expert” witness testimony. Its disingenuous at best.
