Bop facts: The most important aspect of this decision is what it says about JPM and the FDIC's ability to appeal these critical rulings. As valuation methodology is a legal decision it can be reviewed upon appeal as I discussed earlier today (i.e., would only delay things because, as I discussed below, WMI was insolvent under any standard and got nothing for its seized assets). What JPM and the FDIC cannot appeal is any factual findings Judge Walrath makes.
As for the solvency question which I maintain is of critical importance as WMI must show it was insolvent as a result of the seizure, the court could employ any of several methodologies.
Bop’s nice words: The Qs recovery will be one for the history books.
Viv Reafirmation: I know these legal arguments are well beyond most casual readers, but these 3rd Circuit precedents are what Judge Walrath is REQUIRED to follow, and, as Bop points out, with all our background facts, the "discounted cash flow method" of valuation is clearly what Judge Walrath should apply in the WMI case, which potentially maximizes our recovery.
Bop once more: You're right that the discounted cash flow (DCF) methodology is potentially devastating for JPM and the FDIC.
Bop’s math: If one assumes JPM enjoys a conservative spread of 5% on the $200 billion in deposits (after deducting costs of branches, etc.), that's $10 billion annually. Assuming g (growth of the spread) of about 2% and r of 10% you get r-g of 8%. This results in the $10 billion from the deposits and branches being worth about $120 billion (i.e., spread/r-g = $10BB/.05), more than double the 2x book value (i.e., $52 billion) we've been kicking around. (Indeed, in a simple DCF model like the one I give you'd need an r of a whopping (and unlikely) 19.23% to force a $52 billion result, the equivalent of 2x book!). The foregoing shows why Dimon's $8 per share offer was angrily rejected.
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