dcxavier

Citi, Merrill, WaMu: Death Spiral Financing

The "death spiral" clause TPG inserted isn't meant to be taken at face value. What it does is give them a place at the negotiating table if further investment is required. No one is going to sink more dollars into WM if a big slug of it goes right out the door to TPG and crew. The TPG crew owns about half the bank now. If WM continues down it's current path and requires more capital, TPG may be faced with the dilemma, do they want to own 20% of a solvent bank or 50% of nothing. I'll wager on the former.

How To Buy a Bank (and Other Beaten-Down Stocks)

About WM. Sure they were $2.6B cash flow positive, but $2B of it came from a $1B preferred issuance plus another $1B bond offering. Not exactly sustainable. Go to pages WM-14 and WM-15 of the 8-K with the latest earnings release and see how NPA and actual writeoffs are ramping out of control, especially the HELOC. And if you think that $327B in assets, including $50B face value of HELOC is still worth $327B, then I have a bridge in Brooklyn to sell you. There's a reason they took $7B in cash, it was to maintain Tier 1 capital and prevent insolvency. If housing price keep fall another 10-20% in CA, AZ and FL, the $7B won't be enough.