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HomeLet’s Look Under the Washington Mutual Rock
Posted by Larry Doyle on May 28th, 2009 1:02 PM |
Many people may think Washington Mutual is just another large financial conglomerate that has since gone into thrift heaven via its takeover by JP Morgan. While WaMu is now part of the JPM franchise, it continues to send very real signs which provide great insight as we navigate the economic landscape.
Thank you to our friends at 12th Street Capital for highlighting a release put forth yesterday by Jamie Dimon, chairman and CEO of JP Morgan. As the Financial Times reports, JP Morgan Warns on Credit Card Woes:
Jamie Dimon, JPMorgan Chase chief executive, warned on Wednesday that loss rates on the credit card loans of Washington Mutual, the troubled bank acquired last year by JPMorgan, could climb to 24 per cent by the year end.
In the past, credit card loss rates have tracked the unemployment rate but that relationship has been breaking down for more troubled credit card portfolios, such as the $25.9bn in WaMu credit card loans.
At the end of the first quarter, 12.63 per cent of the WaMu credit card loans were deemed uncollectable by JPMorgan. The bank estimates that figure could reach 18 to 24 per cent by the end of 2009, depending on economic conditions.
The initial question begs as to how and why the credit performance of WaMu’s cardholders could be that much worse than the industry as a whole. For those unfamiliar with Washington Mutual, the institution made a failed attempt to penetrate the Wall Street fortress via leveraging its credit origination platform. WaMu was one of the most aggressive lenders across the spectrum of products. As I wrote back on November 12th in The Wall Street Model Is Broken….and Won’t Soon Be Fixed:
At the turn of the century, the Wall Street model was a pure “originate to distribute” model with little to no residual risk on behalf of the originators or underwriters. When there is no residual risk, those who “WIN” are the players that can purely process the most volume. Well, how does one get volume? Lower the credit standards, put fewer restrictions on borrowers, little to no covenants (NINA Loans: no income, no asset check).
Washington Mutual was the poster child for aggressive, if not irresponsible, lending. When their distribution capabilities ceased, the institution was left “holding the bag.” That bag was filled with credit cards now projected by the TOP banker on the street to default at twice the norm. What more can we learn in this process? Let’s dig deeper. (more…)
Will Jamie Dimon be the Next Treasury Secretary?
Posted by Larry Doyle on March 20th, 2009 9:02 PM |
The pressure on Treasury Secretary Tim Geithner is increasing from within the Democratic Party, across the aisle, and the media. Will Tim be fed to the lions? Well, the standard procedures of implementing change seem to be occurring. What are those steps?
JP Morgan Chairman and CEO, Jamie Dimon
1. A vote of confidence by the Administration. Always a kiss of death!
2. Leak the name of a strong prospective secretary.
Who might that be? JP Morgan Chairman and CEO, Jamie Dimon.
Dimon is enormously well respected in Washington and Wall Street. He can quickly build a team. He has run very large organizations. He has been a longtime Democratic supporter and publicly promoted President Obama and his plans.
I find it interesting that Dimon’s name was bandied about last October as a prospective leader of Treasury. Market Watch highlighted this fact in reporting The Next Treasury Secretary Is…
As the firestorm over the prospective legislation to restrict Wall Street bonuses grows, do not be surprised to see Dimon ride in on the white horse to broker peace between Washington, the financial community, and the public at large.
LD
Lessons from Bear Stearns
Posted by Larry Doyle on March 16th, 2009 10:37 AM |
It was one year ago that the Federal Reserve and Treasury delivered Bear Stearns into the hands of JP Morgan for $2 a share. Bear Stearns stock had traded above $170 a share in 2006. With the passage of time, what are some of the lessons learned and what questions remain unanswered.
1. Although Bear Stearns employees and shareholders may not qualify a price of $2 a share (revised to $10 a few weeks later) as being saved, would the financial system have been better off letting Bear totally fail? Why? If Bear had failed, many people do not believe we would have had the breakdowns in our financial systems that occurred because of Lehman’s failure.
2. Did Dick Fuld, CEO of Lehman, assume that the Fed and Treasury would save Lehman much as they did Bear? Was he less aggressive in pursuing increased capital injections during the Summer 2008 as a result? Many people believe this to be the case. (more…)
Let’s Question the Bank CEOs
Posted by Larry Doyle on February 11th, 2009 9:27 AM |
This morning at 10am, the CEOs of the major money center banks in our country will be in Washington to face Congressional heat. Watch it LIVE on C-Span3.
These CEOs are easy targets for plenty of reasons. As a precursor to their testimony, I thought it may be helpful to view a 1-minute clip of Jamie Dimon, CEO of JP Morgan, commenting on the proposed stimulus plan, the state of the banking industry, and the concept of nationalizing the banking industry.
If I were questioning these CEOs, I would want to ask the following:
1. To all the CEOs, how do you justify paying $18+ billion in year end bonuses after having taken more than $150+ billion in government funding?
2. Why shouldn’t Citi be formally nationalized right now given the market’s belief that if positions were marked to market properly that the institution would be insolvent?
3. How do you justify the egregious process of raising rates on credit card lines for consumers who are not delinquent?
