Monday, January 4, 2010

For the Gamblers Part 2


For my faithful readers you may recall a blog from late September.  In it I wrote of the ongoing bankruptcy case involving Washington Mutual.  On that particular day the stock of this bankrupt company had made quite a remarkable run before falling back into its normal range which is 10 to 12 cent for the common stock and about 20 to 25 dollars for the preferred.

I had been a large holder of the common when the bank was seized by the FDIC and handed over to JP Morgan for next to nothing.  A lot has happened in the last 14 weeks.  WMI, the bank's holding company is getting a big fat tax return from the federal government.  And a constant flow of court documents is showing what a lot of folks at suspected all along, a conspiracy. 

JP Morgan had tried to buy WAMU about five months before the seizure 16 months ago.  JPM was pretty much in full court press mode trying to grab the bank on the cheap when the financial meltdown began with the bankruptcy of Lehman Brother's.  It gave the FDIC the excuse to grab a troubled but still financially solvent WAMU. 

Journalists have picked up the scent and have written some damning articles about the seizure in the last two weeks.  As a result WAMU preferred stock which you could have purchased for about three dollars a share a year ago has topped 90 dollars.  The common stock stands at just 17 cents a share as there is still a lot of concern as to whether there will be enough money in the end to pay off the bondholders, the preferreds and the common.  Because of this I'm actually in the green and keeping my fingers crossed that it could result in even more.

Should a settlement reach down to the common the speculation is that the price could be anywhere between four dollars a share to 24.  Given the appearance that JP Morgan or the FDIC is going to have to ante up more money for basically stealing a healthy bank it appears a pretty good bet that the commons will get something.  I guess what I'm suggesting is you have 500 dollars or so to gamble with you could pick up a few thousand shares on the cheap right now.  A couple of thousand shares could net you anywhere between 16 and 24 thousand dollars.  Then again, you could lose it all, after all, it is a bankrupt company. 

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