Posts filed under “M&A”
He’s creatively bankrupt. Recent studies show that few post and no one clicks through on likes, what’s a poor boy to do? Buy something with all that Wall Street money to deflect criticism as those prognosticating and investing miss the point. Steve Jobs is a hero not because he started the computer revolution, but because…Read More
Defense! Google’s Nest Labs acquisition is a smart move Barry Ritholtz Washington Post, January 26 2014 With the Super Bowl just a week away, the age-old question of whether offense or defense wins big games is at hand. “The best defense is a good offense,” goes the saying, with the Denver Broncos called…Read More
> My Sunday Washington Post Business Section column is out. This morning, we look at Google’s acquisition of Nest Labs. My perspective is that Google is trying to avoid being disrupted or marginalized the way so many other tech companies have been. Here’s an excerpt from the column: “Perhaps the granddaddy of cautionary technology…Read More
I have been thinking about Google’s acquisition of Next Lab’s last week for the eye-popping sum of $3.2 billion dollars. There have been numerous criticisms of the acquisition in terms of cost, with some chatter of this as evidence of a bubble in Silicon Valley. Perhaps it is worth considering this from a different perspective….Read More
click for bigger graphic Source: Bank America Merrill Lynch Pierce Fenner & Smith turns 100 today. At least, she would have been, if she was a standalone entity, and not a government rescued TBTF entity, forced into a shot-gun wedding with Bank of America. I have a warm place in my heart for…Read More
Josh Rosner (
@JoshRosner) is co-author of the New York Times Bestseller “Reckless Endangerment” and Managing Director at independent research consultancy Graham Fisher & Co. He advises regulators, policy-makers and institutional investors on banking and financial services (a more complete bio appears at the end of this column).
This is part 2 of 5; Yesterday evening, we published the Introduction. We will be releasing a different part each evening and morning culminating in the release of Rosner’s complete report on Friday morning. On that date, the Senate Permanent Subcommittee on Investigations will release their final report on JPM’s CIO Group (aka the London Whale).
We will address under-appreciated but material fundamental issues in a forthcoming report. Consistent with the purpose of this report we felt it important to consider outstanding internal control, headline and other extraordinary items that could materially impact JPM’s profitability and potentially highlight further breakdowns in controls.
Washington Mutual: a Story of Opacity and Impunity
Perhaps no other example illustrates JPMorgan’s scorched-earth legal approach better than the disputes over the estate of Washington Mutual (WaMu), which the firm acquired from the FDIC in September 2008. JPMorgan portrays its purchase of WaMu during the depths of the financial crisis as a patriotic act performed by a well-run bank. Its public statements and regulatory filings tell a different tale.
In August 2009, Deutsche Bank, as trustee for about $92 billion of notional WaMu securitizations, filed suit against the FDIC demanding the repurchase of billions of dollars of mortgages that they argued violated representations and warranties in the pooling agreement. The FDIC moved to dismiss the complaint, arguing that JPMorgan had assumed the liabilities in the WaMu purchase. Consequently, Deutsche Bank amended its complaint to add JPMorgan[i]. JPMorgan is protected by a broad gag order that has sealed away, from public view, any internal communications on Washington Mutual. We have had to rely on public information and information provided as a result of freedom of information requests.
After several years of agreeing with the FDIC’s position and acknowledging that it acquired the mortgage liabilities of Washington Mutual[ii], JPMorgan appears to have changed its mind when it realized the enormity the industry’s mortgage putback risks[iii]. JPMorgan is now boldly demanding indemnification from the FDIC Insurance Fund.
JPMorgan, which in the aftermath of the financial crisis, accepted more than $391 billion of government emergency program support[iv], is seeking to shift losses on over $190 billion of Washington Mutual-related mortgage securities onto the FDIC – claiming that for a mere $1.9 billion it bought nearly all of the positive value of WaMu and was able to stick the public with essentially all of the ongoing losses. If the firm fails in these efforts it could be stuck with settlement costs on claims of between $3 and $5 billion. Unfortunately, a continued lack of clarity about the firm’s reserves coupled with recent plaintiff-friendly court rulings that may increase putback settlement costs make it difficult to assess whether JPMorgan is adequately reserved.
Since it began to deny its obligation, JPMorgan has repeatedly tried getting the FDIC to agree that it has approval to settle and then send the FDIC the bill. The arrogance, impunity and extent to which lengths JPM’s lawyers go in attempts to saddle the FDIC with its own losses are amazing. In a strongly worded letter of response to JPM’s repeated attempts to fool the FDIC into stating or implying it accepted consent, the FDIC strongly states that it has not consented to any actions or inactions by JPM and that “insomuch as these assertions may have become boilerplate language in correspondence from this firm, please consider this letter to be the FDIC’s standing rebuttal” [v]. Still, recent press reports suggest that JPMorgan and Deutsche Bank are engaged in settlement talks and that JPM’s strategy may be to settle with the Deutsche Bank (Trustee) investors, indemnify those investors and have them file a claim against the FDIC for indemnification.
Even beyond losses on the $92 billion of original principal balance for which Deutsche Bank is trustee, there are losses associated with another $100 billion of WaMu mortgage securities over which either JPMorgan or the FDIC will ultimately be required to settle.
In early 2008, JPMorgan began to do due diligence on Washington Mutual with an eye to acquiring the troubled but still solvent firm, but because of the potential for big losses at WaMu, JPMorgan CEO Jamie Dimon chose not to move forward with an acquisition[vi]. Three months later, WaMu was bankrupt. As the FDIC began to plan for the closing and sale of WaMu, it offered bidders five possible transaction structures[vii], each with different levels of acquired liabilities.
On September 23 and 24, 2008, the FDIC negotiated over JPMorgan’s bid, which was for the acquisition of all of WaMu’s assets and liabilities except for the preferred stock, subordinated debt and senior debt of the bank[viii]. The deal structure that JPMorgan chose also required that the winning bid come at the least cost to the FDIC.