Anatomy of a Terrible Bank

• Report this Comment On October 26, 2009, at 4:44 PM, NWInquirer wrote:

  The default rates from WM are horrifying indeed. What then, are we supposed to believe of the recent extreme cc rate hikes mailed out by Citibank last week to tens of thousands? Many, myself included, were treated to a 'greeting' that stated we were going from our single digit rates to 29.9%.... with histories of no missed, no late payments, and paying above the minimum. All in the name of 'so they can continue providing excellent service.....'

  I've seen the reports that Citicorp is in dire staits - is this a last-ditch effort by them to keep from going under?

• Report this Comment On October 26, 2009, at 11:01 PM, HROLLER30 wrote:

  Wamu TRUTH...

  READ THESE COURT DOCUMENTS!

  JPMorgan admits that the FDIC took over a solvent bank in one of the latest court documents...

  I'm enclosing a few more documents filed through the BK court in regards to a declaration of Thomas M. Blake ( http://www.crai.com/ProfessionalStaff/listingdetails.aspx?id... ).

  The declaration can be found in 103-4.pdf at http://www.mediafire.com/?sharekey=3b830df9f3d0e6fce7c82ed4b...

  Quoting:

  12. Based on my review to date, there is no indication that the OTS performed a solvency analysis consistent with the test for insolvency specified in the Bankruptcy Code. There is no indication that the OTS assessed the fair sale-able value of the assets of WMB (or WMI). Nor is there an indication that OTS compared the fair sale-able value of the assets of WMB (or WMI) to the total amount of either company’s respective liabilities. There is no indication that the OTS performed a comprehensive cash flow analysis of WMB (or WMI). Instead, the OTS found that “WMB met the well-capitalized standards through the date of receivership.”8 Thus, without a thorough analysis of the assets, liabilities and capital of WMI and WMB, it is not possible to come to a reliable conclusion concerning the financial solvency of either entity, whether on a consolidated or stand-alone basis.

  Here is another document that says as of August 14, 2008:

  "We propose to decapitalize WMBfsb by returning $20 billion of capital to its parent. The $20 billion will include the master note of approximately $7 billion, proceeds from $3.5 billion of Discount Notes and cash generated through additional wholesale deposits and advances from FHLB Seattle. We propose the payment of at least $10 billion by September 30, 2008 and the remaining $10 billion through December 2009."

  "The net balance sheet of WMBfsb will be approximately $34 billion to $36 billion after Project Fillmore. The leverage ratio will decrease to 25% from 62%. A well-capitalized institution requires an 8% or higher leverage ratio."

  Read reference page 45 of DOCUMENT 103-1.pdf from here:

  http://www.mediafire.com/?sharekey=3b830df9f3d0e6fce7c82ed4b...

  Enclosed is a link to the affidavit of Doreen Logan who is the Controller/ Assistant Treasurer of Wamu who states that there was no liquidity problems;

  http://www.google.com/search?hl=en&ie=ISO-8859-1&q=%...

  Remember, WMBfsb was also taken from the holding company and sold to JMorgan/Chase with all of the other assets for only $1.88bil.....

  Please, take some time and read these documents. They are a bit long but well worth the read. Don't you wonder why the main stream media doesn't mention the suppose "failure" of the largest financial institution in America? Wamu was a 100+ year old company.....Here is a link to all documents filed through the BK Court;

  http://www.kccllc.net/wamu

  Jamie Dimon planted "moles" in Wamu??? JPMorgan committed corporate fraud???

  http://www.kccllc.net/documents/0812229/08122290905010000000...

  Wamu's claims against JPMorgan/Chase;

  http://wmish.com/doc/gov/0603/JPM_V_WMI_-_ANSWER.PDF

  I'm also enclosing another link that quotes Judge Hughes from a case against the FDIC that was wrapped up on August 24, 2005; http://blog.kir.com/archives/2005/08/judge_hughes_ha.asp

  "The record shows that the swap was the only reason for this suit. It also shows that the FDIC knew that it had no factual or legal basis for its claims, and that its cases here and in Washington were shams."

  As usual, Judge Hughes is acerbic in his opinion regarding the FDIC's conduct, noting in particular that FDIC officials "lied about it all under oath" and they "discarded the mantle of the American Republic for the cloak of a secret society of extortionists."

  "It's hard to find a word that captures the essence of the FDIC's bringing this action. Irresponsible is close. Arbitrary, dishonest, exploitative, extortionate, and abusive all fit."

  Judge Hughes concluded that Hurwitz and Maxxam "will recover their costs because the record reveals corrupt individuals within a corrupt agency with corrupt influences on it, bringing this litigation."

  The Biggest Banking Heist in World History: Washington Mutual

  http://www.marketoracle.co.uk/index.php?name=News&file=a...

  Please read this descriptive complaint that was submitted to the SEC from Apex Venture Advisors

  Mike Stathis Managing Principal on October 7, 2008 in regards to the manipulation that occurred;

  http://www.avaresearch.com/files/20090930175434.pdf

  http://wamuequity.org

  http://wamuqd.com

  http://www.wamu-shareholders-resources.com/wamued.html

  http://www.wamucoup.com

  http://wamustory.com

• Report this Comment On October 26, 2009, at 11:18 PM, HROLLER30 wrote:

  "Thankfully for us, JPMorgan still reports some of WaMu's results separately from its own. And guess what? They're absolutely, horrifically, disturbingly terrible."

  That has got to be one of the most misleading statements I've heard but then again, there is no such thing with journalists researching the truth...Here's a link to JPM's Oct. 14, 2009 8-K:

  http://investor.shareholder.com/jpmorganchase/secfiling.cfm?...

  Earnings Release Financial Supplement — Third Quarter 2009, Exhibit 99.2: begins about one quarter of the way down. Page numbers are from that exhibit section.

  Page 3, STATEMENTS OF INCOME:

  Footnote (c): "JPMorgan Chase acquired the banking operations of Washington Mutual Bank for $1.9 billion. The fair value of the net assets acquired exceeded the purchase price, which resulted in negative goodwill. In accordance with U.S. GAAP for business combinations, nonfinancial assets that are not held-for-sale were written down against that negative goodwill. The negative goodwill that remained after writing down nonfinancial assets was recognized as an extraordinary gain."

  Extraordinary gain(c) per quarter from WMB acquisition:

  3Q08 = $581 M

  4Q08 = $1325 M

  1Q09 = $0

  2Q09 = $0

  3Q09 = $76 M

  Thus total extraordinary gain from WMB acquisition = $1.982 billion

  Page 3, DILUTED EARNINGS PER SHARE:

  3Q08:

  -- (8 cents) = income (loss) before extraordinary gain

  -- 17 cents = extraordinary gain from WMB acquisition

  -- 9 cents = net income

  4Q08:

  -- (29 cents) = income (loss) before extraordinary gain

  -- 35 cents = extraordinary gain from WMB acquisition

  -- 6 cents = net income

  3Q09:

  -- 80 cents = income (loss) before extraordinary gain

  -- 2 cents = extraordinary gain from WMB acquisition

  -- 82 cents = net income

  Conclusions:

  -- Because in the acquisition of WMB "the fair value of the net assets acquired exceeded the purchase price", this resulted in "negative goodwill", which resulted in an "extraordinary gain" on JPM's books.

  -- For the 3rd quarter of 2008, this extraordinary gain changed what would have been a net income loss of 8 cents per share into a gain of 9 cents per share.

  -- For the 4th quarter of 2008, this extraordinary gain changed what would have been a net income loss of 29 cents per share into a gain of 6 cents per share.

  -- These numbers reflect only the "extraordinary gain" resulting from the "negative goodwill". JPM projected in its 1st quarter 2009 10-Q that overall: "...the net income impact of Washington Mutual’s banking operations could be approximately $0.50 per share in 2009."

  What is "negative goodwill" (from 7/16/09 WMI D.C. filing)?

  Roman L. Weil & Michael W. Maher, Handbook of Cost Management 95-96 (2d ed. 2005): defining “negative goodwill” as “[w]hen a firm acquires another company, and the fair market value of the net assets acquired exceeds the purchase price . . . For negative goodwill to exist, someone must be willing to sell a company for less than the fair market value of a net current assets and marketable securities. Because such bargain purchases are rare, one seldom sees negative goodwill in the financial statements . . . .”

• Report this Comment On October 27, 2009, at 12:25 AM, alphonsocapp wrote:

  Mr. Housel, I find this to be quite an amusing "piece".

  JPMC is still reporting these atrocious numbers in one specific division of WaMu in an attempt to downplay what otherwise amounts to a government assisted robbery.

  Would you happen to know the amount of negative goodwill JPMC reported as a result of that "acquisition"? (Here's a hint: it's followed by nine zeroes.)

  Would you happen to know how Washington Mutual's assets as a whole have resulted in adding billions to JPMC's bottom line since it's "failure" in September of 2008?

  Would you happen to know that Fools before you have correctly analyzed the "failure" of WaMu as a failure not of the bank, but of the regulatory agency, the FDIC, to maintain adequate reserves?

  To quote:

  "Perhaps the most devastating part of this financial crisis took place when Washington Mutual collapsed. When it handed WaMu's assets over to JPMorgan Chase (NYSE: JPM), the FDIC trampled on the very important bankruptcy concept of "Absolute Priority." By shafting debt holders' claims in the deal, the government sent a very clear message that it was a bad idea to loan any money to companies that needed the cash.

  It's no coincidence that the lending market froze shortly after the WaMu seizure, and it hasn't completely recovered since. For there to be any chance for the debt market to recover, whatever laws enabled that fiasco need to be rewritten to assure bond investors' due process rights to company assets in bankruptcy are protected. Otherwise, private interest rate spreads will remain high, no matter how much cash the Federal Reserve gives away.

  Step 2: Protect the Innocent

  That being said, the reason the FDIC acted the way it did was because its insurance fund was at risk of being depleted. It's certainly not the insured depositors' faults that the FDIC neglected its primary responsibility of assuring its insurance fund was adequately capitalized."

  From: http://www.fool.com/investing/value/2008/12/18/4-key-steps-f...

  What is most amusing, however, is the reality behind those "pathetic" numbers. Imagine for a moment that you are a lifelong Washington Mutual customer. You have CD's with them, maybe some common stock, maybe a few bonds. Now imagine it's September of 2008.

  Your bank, which was deemed "Adequately Capitalized" (total risk-based capital ratio of 8.4%) was seized by the FDIC and all $300B worth of assets and over 2,200 branches (sans all liabilities save the secured creditors) is sold to JPMC *hours* later for $1.8B, wiping out over $14B in debt in Washington Mutual Bank FSB and forcing the parent company, Washington Mutual Inc, into immediate bankruptcy (wiping out another $6B in debt and $8B in preferred equity, to make no mention of the losses incurred by common shareholders).

  Now imagine that you had thousands of dollars of losses. You also have a WaMu (now Chase) credit card with a few thousand dollars of credit available. What would you do? There were quite a few jilted customers that leveraged that credit to the hilt and defaulted out of spite. Enough to double the default rates for WaMu? If sentiment on various financial blogs is any indication, I'm personally surprised it isn't higher.

  The savviest of these customers claimed to have run up to their credit limit in some easily liquidated items, and put that money into the distressed equities of the parent company, Washington Mutual Inc. The favorite at the time was the $1,000 face value Preferred series, which has appreciated over 1,200% since then.

  http://www.google.com/finance?chdnp=1&chdd=1&chds=1&...

  JPMC became aware of this at some point early this summer, and has been laying waste to ex-WaMu CC holders, both the knaves and the responsible, jacking up rates, levying capricious charges, anything to cast these accounts out (or get them to convert to Chase CC's with only slightly less favorable terms).

  You can see why this fluff piece, with its assertion that "It's the result of atrocious lending standards, and a culture that promoted lending money to anyone who asked for it." is so amusing. It's the result of the victims of one of the most deplorable characters in this debacle taking their revenge the only way they can.

  If you were ambitious and wanted to write something that might be worth reading, take a nice long look at the "failures" of Lehman Brothers, Wachovia, and Washington Mutual with a more analytical view. Last hint: Paulson, GS, JPMC, and Bair.

• Report this Comment On October 27, 2009, at 12:26 AM, alphonsocapp wrote:

  Mr. Housel, I find this to be quite an amusing "piece".

  JPMC is still reporting these atrocious numbers in one specific division of WaMu in an attempt to downplay what otherwise amounts to a government assisted robbery.

  Would you happen to know the amount of negative goodwill JPMC reported as a result of that "acquisition"? (Here's a hint: it's followed by nine zeroes.)

  Would you happen to know how Washington Mutual's assets as a whole have resulted in adding billions to JPMC's bottom line since it's "failure" in September of 2008?

  Would you happen to know that Fools before you have correctly analyzed the "failure" of WaMu as a failure not of the bank, but of the regulatory agency, the FDIC, to maintain adequate reserves?

  To quote:

  "Perhaps the most devastating part of this financial crisis took place when Washington Mutual collapsed. When it handed WaMu's assets over to JPMorgan Chase (NYSE: JPM), the FDIC trampled on the very important bankruptcy concept of "Absolute Priority." By shafting debt holders' claims in the deal, the government sent a very clear message that it was a bad idea to loan any money to companies that needed the cash.

  It's no coincidence that the lending market froze shortly after the WaMu seizure, and it hasn't completely recovered since. For there to be any chance for the debt market to recover, whatever laws enabled that fiasco need to be rewritten to assure bond investors' due process rights to company assets in bankruptcy are protected. Otherwise, private interest rate spreads will remain high, no matter how much cash the Federal Reserve gives away.

  Step 2: Protect the Innocent

  That being said, the reason the FDIC acted the way it did was because its insurance fund was at risk of being depleted. It's certainly not the insured depositors' faults that the FDIC neglected its primary responsibility of assuring its insurance fund was adequately capitalized."

  From: http://www.fool.com/investing/value/2008/12/18/4-key-steps-f...

  What is most amusing, however, is the reality behind those "pathetic" numbers. Imagine for a moment that you are a lifelong Washington Mutual customer. You have CD's with them, maybe some common stock, maybe a few bonds. Now imagine it's September of 2008.

  Your bank, which was deemed "Adequately Capitalized" (total risk-based capital ratio of 8.4%) was seized by the FDIC and all $300B worth of assets and over 2,200 branches (sans all liabilities save the secured creditors) is sold to JPMC *hours* later for $1.8B, wiping out over $14B in debt in Washington Mutual Bank FSB and forcing the parent company, Washington Mutual Inc, into immediate bankruptcy (wiping out another $6B in debt and $8B in preferred equity, to make no mention of the losses incurred by common shareholders).

  Now imagine that you had thousands of dollars of losses. You also have a WaMu (now Chase) credit card with a few thousand dollars of credit available. What would you do? There were quite a few jilted customers that leveraged that credit to the hilt and defaulted out of spite. Enough to double the default rates for WaMu? If sentiment on various financial blogs is any indication, I'm personally surprised it isn't higher.

  The savviest of these customers claimed to have run up to their credit limit in some easily liquidated items, and put that money into the distressed equities of the parent company, Washington Mutual Inc. The favorite at the time was the $1,000 face value Preferred series, which has appreciated over 1,200% since then.

  http://www.google.com/finance?chdnp=1&chdd=1&chds=1&...

  JPMC became aware of this at some point early this summer, and has been laying waste to ex-WaMu CC holders, both the knaves and the responsible, jacking up rates, levying capricious charges, anything to cast these accounts out (or get them to convert to Chase CC's with only slightly less favorable terms).

  You can see why this fluff piece, with its assertion that "It's the result of atrocious lending standards, and a culture that promoted lending money to anyone who asked for it." is so amusing. It's the result of the victims of one of the most deplorable characters in this debacle taking their revenge the only way they can.

  If you were ambitious and wanted to write something that might be worth reading, take a nice long look at the "failures" of Lehman Brothers, Wachovia, and Washington Mutual with a more analytical view. Last hint: Paulson, GS, JPMC, and Bair.

• Report this Comment On October 27, 2009, at 2:08 AM, alphonsocapp wrote:

  Wow, well I see someone did your homework for you while I was writing my piece. You would do well to read the documents cited. I'm assuming that would eat into your current effort/reward ratio pretty heavily, though. As effort approaches 0...

• Report this Comment On October 27, 2009, at 11:04 AM, TMFHousel wrote:

  "That has got to be one of the most misleading statements I've heard but then again, there is no such thing with journalists researching the truth...Here's a link to JPM's Oct. 14, 2009 8-K"

  How is it misleading? It's misleading because I didn't mention the earnings numbers you cite that have exactly nothing to do with this article? Negative goodwill, extraordinary gains, and EPS carryovers have nothing to do with comparative credit card default rates. The argument of "I can prove you're wrong by showing something completely irrelevant" doesn't hold weight.

• Report this Comment On October 27, 2009, at 1:52 PM, alphonsocapp wrote:

  The statments in question are:

  "Thankfully for us, JPMorgan still reports some of WaMu's results separately from its own."

  [Thankfully?]

  "And guess what? They're absolutely, horrifically, disturbingly terrible."

  [You are alluding that WaMu's results, as a whole, are absolutely, horrifically, disturbingly terrible.]

  "If you've ever wondered what a positively wrecked bank looks like,"

  [Of course, a bank is more than its credit card division.]

  "check out WaMu's credit card default rate in comparison to peers:"

  [The one metric that seems, at first glance, to back your empty assertions.]

  You've written a "fluff piece". Many do. Just admit it and move on to the next one. I notice you're fairly prolific. I'm wondering how far back your career spans?

  http://labs.daylife.com/journalist/morgan_housel?count=10&am...

• Report this Comment On October 27, 2009, at 4:12 PM, corrector wrote:

  mr.housel, did you ask one time, why jpm report this numbers?

  jpm had pushed most of former wamu creditcard holders to a jpm card. do you think, they dide this with the one, who are in danger to default?

  and now they divide the remaining small number of wamu cards with all the remaining bad wamu cards. ges what would they get, a high number or a small one?

  mr. housel, you are near a piece of advertising for jpmorgan (or so stupid, i can`t believe), and in some countrys of the world advertising had to be marked. and unmarked advertising is under punishment.

  and some people could also take your piece of writing as market manipulation. i know, in the usa today, there is no law and order, oligarchs like rockefeller rule. but maybe there are other countrys, where you could be made responsibly for your piece of "journalism".

• Report this Comment On October 28, 2009, at 12:08 AM, alphonsocapp wrote:

  I see you would rather engage those without a good command of the English language than respond to someone who's got your number. Hack an nice career. I mean, Have a nice career.

• Report this Comment On December 15, 2009, at 11:35 PM, alphonsocapp wrote:

  Mr Housel, you appear to be the idiot. You were handed a REAL story, meaty as they come, and you chose to berate those who tried to open your idiot eyes.

  And now Reuters, DJ News, ABC News and more have gotten to this story, while you're still just a snotty hack for fool.com.

  http://www.reuters.com/article/idCNN1523851020091215?rpc=44

• Report this Comment On December 16, 2009, at 12:31 AM, duyrowndd wrote:

  No spin egh?

  That is what your signup to post a message said…..

  I used to respect the "Fool" and their reporting...

  But in this case you are so far off base it is not even funny… You must be heavy in JPM and want to protect your interest.

  JPM has been revoking WAMU Mortgages/HELOC's -requesting full payment from people who have not missed a single payment.

  In some cases selling their houses without their knowledge

  Throwing payments into escrow causing mortgage payments to be counted as late or not being made.

  Claiming the documentation for the mortgage is not right - causing the payment not to post. Then charging escrow fees on account that they just put in escrow. They not allowing people to use the money that is in escrow to make a payment – cause they missed a payment and the escrow is under funded.

  And converting credit cards to their own, and jacking rates of those that stay with WAMU or are already behind on payments to their WAMU cards.

  All to inflate the negative numbers and make WAMU look worse than it was…..

  Signs of a true lending predator

  Please perform your own research and due diligence before you repeat what is put in front of you on a press release.

  A press releases are often used to present a one sided story, or in this case, to stretch of the truth ...

  And get the motley fools like you repeat them and get others to believe….

• Report this Comment On December 16, 2009, at 12:34 AM, duyrowndd wrote:

  No spin egh?

  That is what your signup to post a message said…..

  I used to respect the "Fool" and their reporting.

  But in this case you are so far off base it is not even funny… You must be heavy in JPM and want to protect your interest.

  JPM has been revoking WAMU Mortgages/HELOC's -requesting full payment from people who have not missed a single payment.

  In some cases selling their houses without their knowledge

  Throwing payments into escrow causing mortgage payments to be counted as late or not being made.

  Claiming the documentation for the mortgage is not right - causing the payment not to post. Then charging escrow fees on account that they just put in escrow. T

  They not allowing people to use the money that is in escrow to make a payment – cause they missed a payment and the escrow is under funded.

  And converting credit cards to their own, and jacking rates of those that stay or are already behind on payments to their WAMU cards.

  All to inflate the negative numbers and make WAMU look worse than it was…..

  Signs of a true lending predator

  Please perform your own research and due diligence before you repeat what is put in front of you on a press release.

  A press releases are often used to present a one sided story, or in this case, to stretch of the truth ...

  And get the motley fools like you to believe….

• Report this Comment On December 16, 2009, at 11:20 AM, Fool wrote:

  YOU ARE AN IDIOT!!

• Report this Comment On December 18, 2009, at 2:35 AM, wamurock wrote:

  Mr journalist,

  I believe you are not dumb, that's why your can get a job working as a journalist for Fool. Anyone that has done due diligence on WaMu can easily figure out that, your true intention of writing this article, is no where simply to investigate credit card default rates. You wouldn't have written it this way if your concern is credit cards instead of WaMu.

  WMI's litigation against JPM/FDIC, in Delaware BK court, is squeezing the latter so much, that JPM and FDIC never see it's enough to stop vilifying WaMu, with the great help of reporters like you...

  -- On October 27, 2009, at 11:04 AM, TMFHousel wrote:

  "That has got to be one of the most misleading statements I've heard but then again, there is no such thing with journalists researching the truth...Here's a link to JPM's Oct. 14, 2009 8-K"

  How is it misleading? It's misleading because I didn't mention the earnings numbers you cite that have exactly nothing to do with this article? Negative goodwill, extraordinary gains, and EPS carryovers have nothing to do with comparative credit card default rates. The argument of "I can prove you're wrong by showing something completely irrelevant" doesn't hold weight.

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