Replies to post #183246 on Mr Cooper Group Inc fka COOP

[DrDebit]

Simple scenario - Why JPM may have offered $8/share in 2008.
And what will Solomon be analyzing:

From Wamu's 10-Q at 6/30/2008, see
www.secinfo.com/dVut2.t8tw.htm

(rounded in billions)
Total Assets.......$310
Less: Liab...........(284)
Net Worth............. 26
Less: Preferred.....(3.4)
Common Equity..$22.6

At book value, then, the value per share was $22.6/1.7 billion shares of common, or about $13.3 per share.

Of course we think that is is very likely that by this time JPM was not really serious about an offer, but simply wanted to get inside to look at the operations of WAMU.

So, what if, for purposes of making an offer, JPM simply made the assumption that the "Allowance for Loan Losses" (which was about $8.5 billion)was not realistic and needed to be doubled.

That would reduce the common equity from $22.6 to $14.1 ($22.6 - $8.5) and the new value per share would be $14.1/1.7 billion shares = $8.29 per share. Then, rounding down in case WAMU actually bit on the offer and countered, they could go with a nice, clean low ball $8 per share offer.

What will Solomon be looking at?
Remember, the above was based on book values. Market value adjustments for the nonmonetary assets and valuation accounts are typical in accounting valuations: For example Solomon will consider (1) whether the loan loss provision was realistic, (2) whether the hard assets (branch offices, etc) had market value in excess of book value which is often the case given conservative accounting rules, and (3) the real value of the intangibles which are almost always undervalued.

IMO Solomon will attempt to build a case for increasing the value per share above the book value at take-over date. Although that value (book value) had deteriorated somewhat between July 1, 2008 and late September, the market value adjustments referred to above will likely result in Solomon building a case for the EC that WAMU common was worth at least $15 per share at take-over -- maybe more.

Remember, what Solomon is now doing is what the FDIC should have done instead of selling WMB in one hour in a fire sale! Oh what errors panic can cause.

GLTA