Chamberlain: Factors Affecting the Value of the LTWs
In her November 2010 Declaration, Dr. Chamberlain opined:
“For both the GSBNZs and the DIMEZs, and in direct contrast to the three cash based securities discussed above (CALGZ, CALGL, and CCPRZ), two variables affected the value of the securities, not just one: (1) the proceeds from any litigation recovery; and (2) the parent company’s own share price. That is, the economic and financial factors that affected the economic or financial condition of Dime or GSB also affected the share price of that company’s litigation tracking warrants.” (See Chamberlain Declaration at ¶39)
Here are some of the statements that Dr. Chamberlain made in her analyst reports back in the 1990’s when she covered the LTWs for Jefferies that contradict her own bald assertion:
From the Jefferies 03/02/1998 GSB report:
The market value of the LTW’s is currently $6 per share (Table 2) but could ultimately be worth as much as $9-$10 depending on the size of the ultimate award (possibly including interest) and the taxability of proceeds. They could also be worth nothing. While the latter outcome is unlikely, the ultimate value and the timing of any LTW pay out is in the hands of the courts, not the market. But the spin off is likely to boost GSB’s price as was the case for the original CalFed litigation certificates (CALGZ- $21, NR) and the Coast Federal certificates (CCPRZ- $15 1/4, NR). Based on these shares performance we think the LTW’s could trade up quickly to $8. (Page 1, ¶ 2)
Not only is she failing to suggest that the value of the to-be-spun-off GSB LTWs would somehow be correlated to the stock price of the Bank after the then-forthcoming decoupling, she actually infers that the decoupling of the litigation assets from the bank in the form of LTWs will INCREASE the price of the LTWs (GSBNZ) as it apparently did for other previously spun off goodwill litigation securities.
From the Jefferies 12/14/1998 LTW Panel Report:
"Buyers for the Rumors and the News. All four goodwill litigation securities should trade up on a favorable decision from Judge Smith. Why? Simply put, strong upside potential on price with little correlation to the overall market. Assuming Glendale receives their maximum $2.0 billion, and the appellate process takes two years, GSBNZs should pay out about $11.59 per share in stock of GSB, or its successor, for a 54% annualized return. That’s attractive both in absolute and relative terms especially for investors expecting the stock market underperformance in 1999 and 2000 relative to the past three years."
The inclusion of the statement “with little correlation to the overall market” is obviously good for DIMEQ holders because it shows that when Dr. Chamberlain was an analyst she saw little, if any “correlation” between the overall market and the price of the LTWs yet when she sat on the witness stand she testified at length regarding the “correlation” she suddenly draws now that she is being paid to do so. The inclusion of the “or its successor” language suggests that Dr. Chamberlain assumed that in the event of the sale of the bank or some other type of combination that Golden State Bank would actually honor Section 4.2 of the GSB warrant agreement (which is substantially similar to Section 4.2 of the Dime LTW Agreement). In her 20+ analyst reports covering LTWs and LPCs, Dr. Chamberlain never warned investors that GSB or its Board could, on a whim, decide not to honor the agreement (whether a combination occurred or not) and simply transfer the litigation assets to a successor free and clear of any obligations to the GSBNZ LTW holders.
So the question one might reasonably ask is whether she was less than forthcoming with the market by withholding such important information when she issued her analyst reports in order to peddle LTWs as a market maker or is she less than forthcoming with the court now in order to peddle her bought and paid for opinion as an expert witness in exchange for an administrative claim for untold billing hours tolling at $600 per hour. Certainly the fact that she personally traded in the LTWs and LPCs (which she testified to) while covering these securities for Jefferies as an analyst wouldn't have had any bearing on her previous opinion just as the fact that she tells a different story now isn't impacted by her being paid to do so.
The fate that WMI seeks to impose upon Dime LTW holders was obviously not a risk that the markets ever perceived. These risks and correlations that Dr. Chamberlain is so sure of today, were somehow always missing not only from her tabular calculations of present value and terminal value but are also missing in her narrative descriptions of value drivers and events. She never once presented a valuation of any LTWs or LPCs where any single line item in a tabular calculation or any narrative discussion mentions the financial position or results of operations of the Banks or the holding companies as being correlated with the “per warrant” value. And she is, to her own knowledge and by her own testimony, the only analyst that covered these LTW and LPC securities.
Color me confused as to what Dr. Chamberlain's real opinion on market correlation actually is because it appears to change based on who is cutting her checks...
AI
