Monday, September 21, 2009

For the Gamblers

A little over a year ago my portfolio took a major hit. I know a lot of us lost a lot of savings when the stock market took a nose dive, but I was particularly upset when the FDIC seized Washington Mutual. I had a rather large position in that particular savings and loan. My broker had dutifully dollar cost averaged my position as the stock sank which only magnified my losses.

I was angry. The FDIC seized WAMU just a few days before Congress finally passed TARP. And I was doubly surprised when they took WAMU on a Thursday. Normally the FDIC will seize a failing financial institution on a Friday.

I started doing some research. Basically I hit the stock chat rooms and I soon became convinced that something was fishy with the whole deal. WAMU had hired a top bankruptcy firm to handle its case and it immediately became clear that the FDIC had screwed up royally.

WAMU was a wholly owned subsidiary of a company called WMI. Besides owning WAMU, WMI owned a couple of credit card companies including Providian. WMI also owned a lot of the property that WAMU used as banking facilities etc; The FDIC had not only seized WAMU's deposits, but it also sold the credit companies and property WAMU didn't own to JP Morgan for 1.9 billion dollars. The credit card companies alone were worth several billion.

I became convinced that there was some gold in this bankrupt company. Not soon after a group in Texas sued the FDIC for fraudulent conveyance. Basically the suit says the FDIC gave JP Morgan property that didn't belong to WAMU. So the whole shooting match became a double whammy. The final straw was a 4 billion dollar deposit WMI had made in JP Morgan several weeks before the seizure, money WMI wanted back but JP Morgan was refusing to turn over.

There are a lot of smoking guns in all of this and if you like conspiracies it's pretty apparent that the seizure was a sweetheart deal for JP Morgan which had made a bid for WAMU earlier in the summer of 2008 that was rejected. The FDIC wanted to put the fear of God in Congress to get TARP passed and the WAMU seizure did the trick.

For those of you who like to gamble I suggest taking a hard look at WAMU. I purchased its preferred stock worth 1000 dollars a share for a little over four bucks, its symbol is WAMPQ. It's up 800 percent. I also increased my stake in the common stock at nine cents a share, its symbol is WAMUQ. It's up 300 percent. I will remind you that this is a bankrupt company waging a major legal battle to make the shareholders whole. I only spent what I could afford to lose, but I believe that JP Morgan is going to either pay up or do a stock swap.

Do some research and check it out. The common which is at 40 cents a share could end up being worth between 8 to 24 dollars a share. That's not a bad bet. The preferreds have gotten pricey at 40 dollars a share but it if its made whole, cha-ching! BTW... as it stands right now, I'm almost even on what I lost a year ago.

1 comment:

  1. Rink, if there is a stock swap, any ideas on what would happen to the common shareholders that didn't register their shares after the seizure?