Arithmetic of WaMu seizure & sale

[CookingWithGas]

From an article quoted in another thread:

Under the deal, JPMorgan Chase will acquire all the banking operations of WaMu, including $307 billion in assets and $188 billion in deposits.

In exchange for scooping up WaMu, JPMorgan Chase (JPM, Fortune 500) will pay approximately $1.9 billion to the Federal Deposit Insurance Corporation.

…

The FDIC, however, was quick to point out Thursday evening that the WaMu-JPMorgan Chase deal would not have any impact to its insurance fund which covers customer deposits when banks fail.

“WaMu’s balance sheet and the payment paid by JPMorgan Chase allowed a transaction in which neither the uninsured depositors nor the insurance fund absorbed any losses,” Bair said.

OK, deposits are liabilities on the bank’s balance sheet. I don’t know what the assets are, probably some combination of buildings, investments, and receivables on loans that are still good (they plan to write off about $31 billion of subprime loans). So the net is roughly $200 billion.

If FDIC didn’t have to pay any claims, and JPMC is getting a bottom line of $200 billion, why did they pay only 1% of that amount? This is like the bellhop and the missing dollar. (The stockholders lost everything, but they are not part of this equation. I don’t know what happens to the $1.9 extra large that the FDIC gets.)

I hope I am asking a simple accounting question but I suspect this gets complicated.

[OldGuy]

@CookingWithGas

From an article quoted in another thread:

OK, deposits are liabilities on the bank’s balance sheet. I don’t know what the assets are, probably some combination of buildings, investments, and receivables on loans that are still good (they plan to write off about $31 billion of subprime loans). So the net is roughly $200 billion.

If FDIC didn’t have to pay any claims, and JPMC is getting a bottom line of $200 billion, why did they pay only 1% of that amount? This is like the bellhop and the missing dollar. (The stockholders lost everything, but they are not part of this equation. I don’t know what happens to the $1.9 extra large that the FDIC gets.)

I hope I am asking a simple accounting question but I suspect this gets complicated.

I don’t know without more information, but I suspect for one thing that in addition to writing off $31 billion, many of the other loans are not worth their face value which is probably the stated value of the assets in the description.

[SmackFu]

If you look at the investor presentation on this page, page 17 has the math. It’s formatted more nicely there, but here’s the numbers:

Tangible assets assumed $296
Liabilities assumed 265
Net assets $31
Loan marks (31)
Reversal of loan loss reserve 8
Other PAA (6)
Adjusted net asset value $2
Consideration (2)
Pro forma capital impact $0

[CookingWithGas]

@SmackFu

If you look at the investor presentation on this page, page 17 has the math. It’s formatted more nicely there, but here’s the numbers:

The answer seems to be buried in there. The article I quoted said deposits of $188 billion but didn’t mention other liabilities. This presentation shows liabilities of $265 billion. The presentation also shows assets of $296B and the article shows $307B. That pretty much accounts for the discrepancy (I made a $100 billion error in my OP, good thing I’m not their accountant :o).

Thanks for finding the real numbers!!!