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  • New Precedent Undermines Investment in Banks and Holding Companies 0 comments
    May 17, 2009 12:34 PM | about stocks: WMIH, JPM

    The FDIC’s takeover of Washington Mutual in September of 2008 and the subsequent fire-sale of Washington Mutual’s assets to JP Morgan changed the game rules for banks that might find themselves in trouble or looking for a buyer. The new rule: Don’t deal with the bank at face value, instead wait or force the FDIC to place the bank into receivership then buy the assets at a fire-sale price. It appears that bidders for BankUnited Financial Corp. hope to do just that.

    Prior to the FDIC’s takeover of Washington Mutual, banks would attempt to sell themselves to prospective buyers near or at face value, attempting to get the most for their assets, their shareholders and creditors. Now bidders, having seen the sweet deal JP Morgan Chase received when it bought Washington Mutual’s assets of 300 billion for 1.888 billion, are not willing to deal directly with banks. Instead bidders now wait on the side lines, hoping for the new form of bailout being offered by the FDIC – “assets on the cheap.”

    The new rule isn’t just speculation, it’s fact as quoted from a recent Bloomberg article about BankUnited Financial, “Potential buyers, including a private-equity group led by former North Fork Bancorp Chief Executive Officer John Kanas, have expressed an interest in buying BankUnited out of receivership, Bloomberg said.”

    Changing the rules of the game doesn’t appear to be the FDIC’s intention when it seized Washington Mutual but bidders have wised up and will certainly take advantage of the way the new game is played, having a chilling effect on potential deals. This of course doesn’t bode well for banks, their shareholders or creditors.

    Stocks: WMIH, JPM
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