When thinking about the relative value of Cash vs Stock in today's environment, we can come to these conclusions:
WMI would rather have cash and remain independent.
JPM would rather give stock and do away with WMI to prevent the WAMU name from reemerging as a competitor.
So, now each side has a bargaining position.
Maybe JPM offers 20% more value in stock than WMI wants in cash in order to get them to take stock instead of cash.
Maybe it will be easier for JPM to justify such a trade to their stockholders than to justify and endure what it will take to survive after paying out that kind of cash.
Remember that for a bank, cash is their lifeblood. It is used as RESERVES that allow them to make loans and therefore obtain income.
There is no way that JPM will part with this kind of cash *if* they can negotiate another way of settling this issue.
Why would WMI accept absorption and stock instead of a cash settlement?
First you have to answer the question 'Who is WMI?' WMI *IS* the people that hold WAMUQ, WAMPQ, WAMKQ, and WAHUQ.
(A) Some of these people own it and don't even know about it (i.e. through Mutual Funds, retirement plans, etc.). They won't care as long as their balance is bigger as time goes on.
(B) Some of these people are simply stock traders and investors who will only care if they made money when the dust settles.
(C) Some of these people also have an emotional tie to the company in addition to their stock. They will care.
If groups A & B are larger than group C, then WMI should take the best deal.
If group C is larger than groups A & B, then WMI should hold out for cash.
HOWEVER, remember that nothing is certain. Anything could happen. A jury could even find that WMI deserves nothing. (I don't think it is likely, by the way.) A bird in the hand is worth two in the bush. At some point, group C will have to weigh the chances of not getting as much if they hold out for cash.
FURTHERMORE, there is the time issue. If this drags on and on and on, sure even if WMI wins, they will get interest. But with the market looking like it is coming to the end (please God I Pray) of a BEAR phase and may be about to take off on another BULL run (Please God I Pray), one might make more on those assets by having them now than by getting them + interest later.
Over the long haul, interest is always going to be less than hoped for gain in the market or EVERYONE would take all of their money out of the market and put it in CDs.
ONE LAST THING...There is a large portion of the money that will likely come from FDIC. At least, they are who is being sued for the difference between the value of WMB and the sale price to JPM. FDIC may have trouble staying solvent themselves. Do we want to be postponed and postponed and postponed until there is not enough left in FDIC to cover what they will have to pay? I say settle AS SOON AS YOU GET A GOOD PRICE - Cash / Stock / Combination / Whatever.
You ask "Why would WMI settle for a stock swap?"
I ask "Why would they risk so much just to get cash if they can get the right value in a stock swap?"
For the record, I would prefer cash. I am just not convinced it will happen. In fact, I don't believe that there will be any cash for common stocks even if there is some cash involved.
Bair is about to get bounced out of FDIC.
Dimon sure looks like he is about to take a prime position somewhere in or near the government.
There are all kinds of reasons *on both sides* to end this quickly.
There are several possibilities as to why the settlement is being delayed for legal and regulatory reasons. I expect that as soon as they are cleared, we will see something happen.
Of course, I could be very very wrong.
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