For those who are following the Court Confirmation(?)hearings.
On Fri the Dec 3,2010 the Court spent 61/4 hours listening to cross examination of JPM/WMI/WMB witnesses by various debt holders to determine how Assets and Liabilities were split after BK.
In the morning session, Mr Jonathan Goulding was cross examined for 31/2 hours. He was the restructuring expert who helped JPM sort out valuation and allocation of assets to the three entities.
Justin Nelson attorney for creditors tried for over 2 hours to nail Goulding on admitting that he sought and received Legal advice from JPM Attorneys on splitting of assets. Opposing Attorneys successfully objected to any testimony affirming such. Eventually it leaked out, that for some aspects he consulted with the Attorneys, but that information is confidential.
Nelson then switched to find out about WMI. It is contemplated that WMI will be re-organized after the bankruptcy.
Goulding testified that the primary asset of WMI is a small re-insurance division left over from the WAMU bank valued at $157.5 million. In a convoluted admission, the witness reveals that the valuation was derived by assuming that the re-insurance policies will not be renewed and no new business will be initiated. Thus, the extreme low value was based assumption that it will be derived from just the run-off from business written before the Bkcy.(my inert -like a going-out-of-business sale at your corner hardware store)
[Note: I read elsewhere that Blackstone Group was given confidential information so that they can make a low bid for this Division. I was surprised to see a heavily redacted document, submitted to the Court, that indicated that this division is expected throw off a $470M dividend in 4-5 years hence . Just another GOODIE to distribute to the cronies.] And...as they say in the commercials “but..that’s not all you’ll get!”. See below.
(Also: I also speculate that LTW holders may be issued this security in lieu of cash - wait for the fireworks on this)
About 2 1/4 hours into the hearing. Mr. Steinberg gets to cross-examine.
A much more professional approach than Nelson’s, he wants to know why the WMI valuation was made retroactive to 2008 rather than as of today. Also, who decided how to split up the WAMU estate between WMI/WMB/JPM/FDIC. Most pertinent to us, is why WMI got American Savings Bank litigation and JPM got the Anchor litigation? The answers are muddled and indecisive. Essentially the witness mumbled that they tried to match assets to liabilities. This makes no sense to me.
Steinberg also wanted know if JPM lawyers helped in deciding the fate of the assets. No decisive answer here either.
He asked why were the LTWs valued so low the first time around at $184M and later changed to $250M? Why were the tax gross-up numbers so low and later changed to $144M? Why did JPM use a different assumed tax rate for the Gross-up effectively eliminating $66M in valuation of the Award.
Returning to the WMI valuation, Steinberg revealed that the main asset that WMI will have after re-organization is a $5B Net Operating Loss (NOL) that will shelter up to $100M a year in WMI income from income tax, making this jewel a very valuable asset for a potential buyer. Not such a dead enterprise as projected above.
The answers were not as good as the questions and resolved nothing except to allow Steinberg a podium for revelation about the cutting and dicing of WAMU assets by JPM. Another nugget was that there are approximately $2.5B in direct IRS cash refunds that JPM is getting. All together, there were nearly $19B in NOLs and JPM will take a huge chunk of the rest of these. (Ahaaa...The gift that keeps on giving)
5:20 into the hearing Steinberg interrogates Mr Robert Sims-outside value consultant to the unsecured credit committee. Steinberg drives hard to find out how the Anchor litigation was assigned to JPM, How was it valued? Why did they change the valuation? Why did they not include the tax gross-up? No real answers given.
As we delve into the process, this fish begins to stink more and more.
PS Judge Mary Walrath is a pretty decent moderator. I’m impressed!
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