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Did WaMu Shareholders get Ripped Off?

|Includes: Mr. Cooper Group Inc. (COOP), JPM



In a recent article published by Joe Weisenthal, he closes with the supposition that WaMu shareholders were ripped off or the recent stress tests were a sham.

Mr. Weisenthal points out that the math just doesn’t add up.  His contention is that when WaMu was sold to JP Morgan for 1.888 billion, “it was expected that in an extreme scenario, there were $54 billion more in losses coming from the end of 2007. At that point, an "extreme" scenario was unemployment around 8%. The losses were entirely from WaMu's mortgage portfolio.”

He continues with, “Now the bank lost $8 billion in 2008, leaving potentially $46 billion more in losses. Again, probably more if the 8% unemployment was considered extreme at the time of the seizure.”

Of course we have to assume that figures released to the public by JPM related to the Stress Test are true but that’s where it gets messy and doesn’t add up.  JPM revealed that it only has 39 billion in remaining mortgage losses and these losses were calculated using far worse stress factors than 8% unemployment and is applied to the entire JPM mortgage portfolio.  That’s one heck of an accounting error, 54 billion, or 46 billion corrected to 39 billion, and banks should be the most accurate when it comes to accounting, after all, that is their business.

Thus it appears that Mr. Weisenthal is correct when he states, “This leaves two possibilities. One is that the stress tests are a sham and are dramatically underestimating the losses, in which case JPM, the rest of the banks and the regulators who oversaw the whole process are participating in a sham. Or, the original seizure was purposely based on faulty assumptions, causing WaMu shareholders to get ripped off.”

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About John Hempton: brontecapital.blogspot...