Friday, March 12, 2010

Bloodied but Unbowed

The saga of  Washington Mutual took an unexpected turn today in federal bankruptcy court.  A supposed "Global Settlement" was brought before the judge.  I was half paying attention to the share price before I went to lunch and got an excited phone call from a good friend.  He asked if I was watching the share price and I quickly logged onto my trading account and about fell over.  The WAMU commons had plummeted from 40 cents a share to 10 cents a share in less than 15 minutes.  The preferred's had tanked tumbling from 90 dollars to a mere 8. 

My first thought was hmmm, an opportunity to buy more.  But the mayhem on the message boards made it impossible to determine what exactly had happened in court so I stood pat.  What had happened was that WAMU's lawyers announced a deal that would make bondholders whole while stiffing the shareholders.  The big question now is whether the judge will sign off on this "deal" or begin asking some serious questions.

The biggest questions is how a company that was worth 52 billion dollars when it was seized could be sold for 1.9 billion to JP Morgan.  Amazingly the share prices recovered after the disastrous plummet.  The commons climbed back to 19 cents a share, the same share price we were at about six weeks ago.  The preferreds are back to 58 dollars, even higher than it was at the end of December. 

What happens next is anyone's guess.  I think this could take at least another year to play itself out.  I feel certain the perferreds will pay off, the commons, I'm not so sure.

No comments:

Post a Comment