For 18 months, Weil, Gotshal & Manges LLP (and several other Law firms) has been building a case against JP Morgan/FDIC while managing the Bankruptcy case for Washington Mutual, Inc. For reasons unknown to the equity holders of WMI (WAMUQ), Weil’s litigation may have ended on March 12, 2010 in a proposed settlement that appears to give WMI 6.5 billion in cash but what’s not immediately recognized is that the 6.5 billion was WMI’s all along and does not require a settlement – these matters only required a bench ruling from the Bankruptcy Judge, the Honorable Mary Walrath.
By all accounts, JP Morgan Chase (NYSE:JPM) purchased the whole bank assets of Washington Mutual for 1.88 billion in September of 2008. Anyone would agree that 1.88B for a 110 year old organization that had 270 billion on deposit, 29 billion in liquid cash, 2700 banks, 8000 ATM's, and a credit card company is an unjust deal that deserves scrutiny.
The deal becomes even more unjust when one considers the impact it has to JP Morgan - - the deal creates the nation's second-largest branch network. A combined network reaching 42% of the U.S. population, with strong positions in attractive markets such as California, Florida, New York, Texas, Arizona, Illinois and Washington. With the assumption of WaMu’s assets, JP Morgan will have $900 billion in deposits, 5,400 branches and 14,000 ATMs in 23 states.
In addition when you closely examine the proposed settlement you’ll see that JP Morgan actually receives monies in the form of 70% percent of a tax return, referred to as tax return 1. That percentage equates to 1.82 B or 2.10 B (depending of the actual returned amount). Yes, it’s shocking but that is the deal that Weil, Gotshal & Manges LLP was able to muster in 18 months - - a deal that did not benefit WMI but gives additional monies to JP Morgan Chase. In fact the JPM’s portion of the tax return basically means that JPM purchased WaMu for nothing, that the amount paid to the FDIC under the P&A and the amount to be received in tax returns is a wash, JPM gets WaMu for free.
For some reason Rosen with Weil, Gotshal & Manges decided it would be a good deal to give JP Morgan the “Class B” Visa shares worth 250 million for the bargain basement price of 50 million, even more confusing is Weil’s negotiation to give JPM the ownership rights of a Wind Farm to JPM for no monetary consideration, speculation puts the value of the wind farm at the 80 million dollar level.
The proposed settlement is being touted in the press as a ‘job well done’ with ‘pats on the back’ for Weil, Gotshal & Manges but I contend that a settlement is not a ‘settlement’ when all you haggled for was what was rightfully yours and would have been given to you without delay by the Honorable Mary Walrath (she was ready to rule in WMI’s favor and would have done so). I see the proposed settlement as a ‘run-around’ of the bankruptcy court’s solvency/insolvency test(s).
Furthermore, there is a proposed change to the language of JPM’s indemnity claims against the FDIC -- it is now possible that the percentage of tax retuns given to the FDIC will end up in JPM’s accounts. Depending on the actions taken with the new indemnity agreement, JPM may actually receive 22 million or so to purchase WaMu - - Yes, JPM could get all of the assets plus 22 million that rightfully should go to the shareholders, instead of paying 1.88 billion, JPM receives a net positive of 22 million...
My personal request to the Equity Committee - - do whatever is possible to block this proposed settlement and refuse any further offers – I for one, as a shareholder, want my day in court, I welcome a trial. In fact, I say start with day JPM’s Lawyer pleaded with the Honorable Mary Walrath, in that plea Mr. Sacks stated (paraphrase): “Your honor, there is no deposit, the management ran the bank into the ground, if there is a deposit of that size, of 4 billion, then the bank would not have been seized.” We now have JPM and FDIC adimitting (in no uncertain terms) there is a deposit.
Another good starting point, a closer read of “Report and Recommendations Pursuant to Section 133 of the Emergency Economic Stabilization Act of 2008: Study on Mark-To-Market Accounting”, specifically page 101, last paragraph:2. Reported Capital Status for 2008 Failed Banks
- Exhibit III.2 below shows basic descriptive information, including the last reported capital status, for each of the 22 banks that failed as of December 1, 2008.
- As more fully described in the remainder of this section, for most of the failed banks studied, the immediate cause of failure was the inability to become adequately capitalized. For some failed banks, the immediate cause of failure was the inability to meet depositors’ needs. Some failed banks that were closed due to liquidity also had inadequate capital, but others had adequate capital at the time of closure. Most notably, the largest bank to fail, WaMu, was well-capitalized according to the applicable capital adequacy standards at the time of failure.
Finally, I’d request that the EC revisit the original litigation claims from Quinn Emanuel Urquhart Oliver & Hedges, LLP – those claims apparently were not used in the negotiation process. What happened to punishment for the broken confidentiality agreement? What happened to cash infusion into WMBfsb just prior to the seizure? What happened to illegal use of WMI’s Intellectual Property? What happened to the penalty for holding a deposit and possibly making money from that deposit for 18 months? And, what happened to the asset value disclosure required to be submitted to the court by JPM on 3/19/2009 - the court is still waiting for that disclosure.