Jamie Dimon executes yet another coup by purchasing Wamu's deposits and branches for $1.9B. J.P. Morgan is buying Wamu's deposits, but nit the company. Therefore, it is not responsible for paying off WM bonds, preferreds or common equity. WM common and preferred shareholders, along with subordinate debt holders, are probably wiped out!. This is yet another blow to the preferred market.
It is all positive for JPM. Yes, JPM will begin to write down $30 billion of bad mortgages, but how far? A government rescue plan could make even this portion of the deal profitable. JPM issued $11 billion of common equity to raise capital. These new shares were scooped up by the market. In spite of the new shares entering the market, JPM share prices rose yesterday as investors climb aboard a gilded JPM band wagon. The deal catapults JPM into the number one position in terms of U.S. deposits ($911B versus $804B for Citi).
JPM does take on exposure to Wamu;s $28 billion risky credit card portfolio, but since JPM has, for the most part, avoided such exposure, the country's largest bank by deposits should be able to deal with this exposure quite handley. I wonder how C employees feel about their boy running JPM in such a competent fashion?
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