JPMorgan to gain $29 billion in income off bad WaMu loans and accounting change
Interesting how an accounting change can give so much benefit to a bank that had a bundle of bad loans on its books. I would like to know more about the loan that are in question and if they figure they will become or stay current in the future or if this is using the losses to offset tax liabilities?
I was on the conference call with JP when they announce the Washington Mutual acquisition and what I can tell you is that they were very very happy when announcing the deal. They talked about how low they paid for WaMu’s “good” assets and now matter how they looked at this purchase, it would be very beneficial to JP Morgan Chase in the future and you know what, I believe it.
News (Bloomberg):
JPMorgan Chase & Co. stands to reap a $29 billion windfall thanks to an accounting rule that lets the second-biggest U.S. bank transform bad loans it purchased from Washington Mutual Inc. into income.
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JPMorgan expects to eliminate 12,000 jobs from WaMu integration
It was to be expected to see more workforce reduction after this major acquisition purchase. JPMorgan got an excellent deal in the purchase of Washington Mutual. They purchased largest base of retail obanking deposit in the country for a fraction. I have noticed all the marketing is getting slowly changed to the Chase brand.
News:
JPMorgan Chase & Co said it expects to cut 12,000 jobs as it integrates the former Washington Mutual Inc, 2,800 more than its previous estimate. The second-largest U.S. bank also said on Thursday it expects about $2.75 billion of savings from Washington Mutual, offset by $750 million of new investments. Retail banking chief Charlie Scharf said the bank expects to achieve most of the savings by the end of 2009, sooner than originally thought.
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JPMorgan to modify home mortgages to limit foreclosures
Now this is the type of assistance that I think is beneficial. It is a private sector solution that is a compromise between both affect parties. This does not need public funds to be accomplished and if the borrower has the income to support a home loan with normal terms then they should be able to keep their house. If they got in over their head then they should be foreclosed upon.
This serves two among many important functions. One, it lowers the prices in the area to make them reflect the true value in the home and in turn makes them affordable. Second, it punishes people who made speculative purchases to set an example for the future when the next bubble comes along. Many people will disagree with these points, but I feel the short-term pain is better than long-term problems.
News:
JPMorgan Chase & Co., the largest U.S. bank by market value, plans to modify terms on $110 billion of mortgages and forgo foreclosure proceedings on all real-estate loans while the changes are implemented in the next 90 days.
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Lehman’s Cash Crunch Caused by Lender JPMorgan, Creditors State
This is interesting. It looks as these proceedings take place, more details and facts are coming out to see how the collapse of these major financial institutions took place in such a quick fashion. Lehman Brothers’ creditors claimed that JPMorgan had $17 billion dollars of their asset in safekeeping when they had the “freeze” and then subsequent takeover.
News Piece:
Lehman Brothers Holdings Inc.’s main lender and clearing agent, JPMorgan Chase & Co., caused the liquidity crisis that led to Lehman’s collapse, creditors said.
JPMorgan had more than $17 billion of Lehman’s cash and securities three days before the investment bank filed the biggest bankruptcy in history on Sept. 15, the creditors committee said in a filing Oct. 2 in bankruptcy court in Manhattan. Denying Lehman access to the assets on Sept. 12, the bank “froze” Lehman’s account, the creditors claimed.
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WaMu may file for bankruptcy shortly according to Merrill Lynch analyst
Now it looks like its time to seek protection from their creditors. I feel very bad for anyone who put money in this company during the last 6 months. It is sad they could not get the capital they need to weather the storm.
Press Release:
Washington Mutual may file for bankruptcy shortly, said Merrill Lynch analyst Kenneth Bruce terminating coverage of the stock.
The top U.S. savings and loan bank, whose market value has been virtually wiped out because of soaring mortgage losses, was closed by regulators on Thursday, and its banking assets were sold to JPMorgan Chase & Co or $1.9 billion.
The company witnessed $16.7 billion in deposit outflows from September 15 to September 24, according to an Office of Thrift Supervision statement.
“We suspect the series of ratings downgrades and concerns over the position of U.S. financial institutions, in particular Washington Mutual, led to the deposits outflow,” Bruce said.
Shares of Washington Mutual sank 90 percent to 16 cents in morning trade Thursday.
Source: Reuters
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JPMorgan acquires Washington Mutual’s (WaMu) Bank Deposits
Well this has been rumored for some days now and it has now been completed. With their deposits 3 times the FDIC’s balance sheet, this was something that was going to happen. CNBC said a majority of there loan books contained home equity lines of credit, home equity loans, option adjustable-rate mortgages, and subprime mortgages. This does not look good for the existing operations after this purchase with the country going into a recession. It will put pressure on the borrowers to keep up with their obligations.
News Story:
JPMorgan Chase will acquire the deposits of Washington Mutual, CNBC has learned. The deal is expected to be announced during a Thursday night conference call at 9:15 p.m. ET(1-877-238-4671 (U.S. and Canada) / 1-719-785-5594 (International) – access code: 814030 or via live audio webcast at www.jpmorganchase.com). This deal will mark the end of independence for what once was the largest U.S. thrift.
Federal regulators have been heavily involved in putting together the transaction, which comes as WaMu is besieged by a huge number of bad mortgage loans on its books.
The exact details of the deal aren’t known as yet, but JPMorgan is expected to acquire WaMu’s deposits and branches, as well as other operations. The deal isn’t expected to expected to result in any hit to the bank-insurance fund.
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Goldman Sachs and JPMorgan to Become Commercial Bank Holding Companies
It is true when they say this changes the face of Wall Street. In the NY Times article they mentioned the leverage both banks carry is twice what the major commercial banks are, it will be interesting to see what they do to bring this down and what regulation is in place for this and how it will affect their compliance or if the New York regulators even care? What I do love is the mention that with access to the Fed’s discount window, they will now have “permanent liquidity”. I guess it really does not matter if you make bad decisions in the U.S. financial sector, you are now basically rewarded by getting whatever capital is needed to stay afloat.
News Piece:
Goldman Sachs and Morgan Stanley, the last two independent investment banks, will become bank holding companies, the Federal Reserve said Sunday night, a move that will fundamentally alter the landscape of Wall Street.
The move alters one of the models of modern Wall Street, the independent investment bank, soon after the federal government unveiled the biggest market intervention since the New Deal. It heralds new regulations and supervision of previously lightly regulated investment banks, as well as an end to the outsize paychecks that helped shape the image of the chest-thumping Wall Street banker.
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