by Calculated Risk on 9/26/2008 10:44:00 AM

First, here is the investor presentation material from the JPMorgan conference call last night.

Click on chart for larger image in new window.

Here are the House Price Appreciation (HPA) numbers JPM is working with.

JPMorgan presented three scenarios: a base case (with national prices falling 25% peak to trough), a deeper recession (28% decline), and a severe recession (37% decline).

Currently the Case-Shiller futures are predicting a 33% decline peak-to-trough, Goldman is forecasting 27%, and Lehman was forecasting 32%.

Also note the unemployment numbers for each scenario (7%, 7.5%, and 8% for a severe recession), and price forecasts for California and Florida.

Earlier this month, I presented three ways to look at prices: real prices, price-to-rent, and price-to-income. I've taken the JPMorgan national prices forecasts and added them to the price-to-household income chart.

This graph shows the price-to-household income ratio and is based off the Case-Shiller index, and the Census Bureau's median income Historical Income Tables - Households.

Using national median incomes and house prices provides a gross overview of price-to-income (it would be better to do this analysis on a local area).

For this graph, I assumed that prices would fall over four more quarters for JPMorgan's base house price projection, over five more quarters for the "Deeper recession" projections, and over eight more quarters for the "Severe recession" projections.

Also, after reaching the price trough, I held house prices steady while incomes continue to rise mostly with inflation.

I'd expect this ratio to decline below 1.0 (like in the mid-90s), so I think the JPMorgan base case is too optimistic. My guess is that national house prices will decline somewhere between JPMorgan's "deeper recession" (28% peak to trough) and their "severe recession" (37% peak to trough) projections.

by Calculated Risk on 9/26/2008 09:54:00 AM

Wachovia's (WB) stock price is off 22%.

National City (NCC) is off 19%.

With WaMu seized, investors are now asking who is next ...

by Calculated Risk on 9/26/2008 09:31:00 AM

UPDATE: Bush "It's hard work"

Basically Bush said:

There is no disagreement that something must be done. We are going to get a package passed. Republicans and Democrats will come together and pass a substantial rescue plan.

That was it. Sorry for posting the link ...

President Bush will speak on the financial crisis and status of the Paulson Plan at 9:35AM ET

Here is the live feed from CNBC.

by Calculated Risk on 9/26/2008 08:31:00 AM

From the Washington Post: Away from Wall Street, Economists Question Basis of Paulson's Plan. A couple of quotes:

"There is a kind of suggestion in the Paulson proposal that if only we provide enough money to financial markets, this problem will disappear," said Joseph Stiglitz, a Nobel Prize-winning economist. "But that does nothing to address the fundamental problem of bleeding foreclosures and the holes in the balance sheets of banks."
...
"The root of the issue is recapitalizing banks," said Glenn Hubbard, dean of Columbia Business School and a former chairman of President Bush's Council of Economic Advisers. "That could be done more efficiently through the government injection of preferred equity. Then the market could figure out the prices of the assets."

Initially many of us expected a Depression era Reconstruction Finance Corporation (RFC) type preferred stock investment to recapitalize the banks. Instead, the Paulson Plan intended to recapitalize the banks by paying a premium for troubled assets. The compromise bill discussed yesterday was a step in the right direction because of the equity sharing provision (although there was no details).

Apparently there will be meetings again today starting at 11:30AM ET. (scroll down to see posts on JPM / WaMu)

by Calculated Risk on 9/26/2008 01:27:00 AM

Senator Shelby on bailout:



And a little less serious: Debt to America!

by Calculated Risk on 9/25/2008 10:05:00 PM

Paulson Plan Update: No Deal Yet.

“If money isn’t loosened up, this sucker could go down.”
President Bush, Sept 25, 2008

NY Times: Bailout Plan Stalls After Day of Talks; Paulson Heads Back to Capitol Hill

The day began with an agreement that Washington hoped would end the financial crisis that has gripped the nation. It dissolved into a verbal brawl in the Cabinet Room of the White House, warnings from an angry president and pleas from a Treasury secretary who knelt before the House speaker and appealed for her support.
...
It was an implosion that spilled out from behind closed doors into public view in a way rarely seen in Washington. Left uncertain was the fate of the bailout, which the White House says is urgently needed to fix broken financial and credit markets ...

[The] House Republican leader, John A. Boehner of Ohio, surprised many in the room by declaring that his caucus could not support the plan to allow the government to buy distressed mortgage assets from ailing financial companies.

Mr. Boehner pressed an alternative that involved a smaller role for the government, and Mr. McCain, whose support of the deal is critical if fellow Republicans are to sign on, declined to take a stand.

The talks broke up in angry recriminations, according to accounts provided by a participant and others who were briefed on the session, and were followed by dueling press conferences and interviews rife with partisan finger-pointing.

From the WSJ: Leaders Wrangle Over Bailout

It was unclear if an agreement would still come together Thursday night: The emergence of a competing plan was threatening to derail a carefully crafted compromise previously taking shape.

Earlier Thursday, congressional leaders had hammered together the outline of a compromise that involved allotting the bailout money in installments. However, after a meeting at the White House -- attended by President George W. Bush, congressional leaders and the two presidential candidates -- the gathering broke without announcing a deal, despite widespread expectations that one was imminent.

One cause of the delay: opposition from House Republicans who have tried to fashion an alternative "free market" plan that, instead of relying heavily on taxpayer money, could let banks buy insurance for the troubled assets weighing down their books.

On JPM Wamu (scroll down for earlier posts), here is the investor presentation. Basically JPMorgan - in an asset only acquisition - acquired the toxic WaMu loan portfolio and deposit base (all branches). JPMorgan paid the FDIC $1.9 billion, and they expect to take write-downs of $30 billion to $54 billion on the WaMu toxic loans. That is the primary cost of the acquisition - the write-downs.

The holding company is responsible for all lawsuits (good luck). The shareholders are wiped out, and so are most of the bondholders. See the previous post for a couple of interesting charts. I will post on their house price assumptions tomorrow.

by Calculated Risk on 9/25/2008 09:09:00 PM

JPMorgan announces investor conference call:

JPMorgan Chase & Co. (NYSE: JPM) will host a conference call at 9:15 p.m. (Eastern Time) tonight, September 25, 2008. You may access the conference call by dialing 1-877-238-4671 (U.S. and Canada) / 1-719-785-5594 (International) - access code: 814030 or via live audio webcast at www.jpmorganchase.com under Investor Relations/Investor Presentations. Materials and further communication will be available on this website at the time of the call.

Presentation material should be here.

Click on graph for larger image in new window.

Here are the bad asset details. Also see page 16 for assumptions.

Wow. They expect 44% peak-to-trough price declines in California (58% if severe recession).

Here are the House Price Appreciation numbers JPM is working with.

by Calculated Risk on 9/25/2008 09:00:00 PM

JPMorgan Chase Acquires Banking Operations of Washington Mutual

FDIC Facilitates Transaction that Protects All Depositors and Comes at No Cost to the Deposit Insurance Fund

JPMorgan Chase acquired the banking operations of Washington Mutual Bank in a transaction facilitated by the Federal Deposit Insurance Corporation. All depositors are fully protected and there will be no cost to the Deposit Insurance Fund.

"For all depositors and other customers of Washington Mutual Bank, this is simply a combination of two banks," said FDIC Chairman Sheila C. Bair. "For bank customers, it will be a seamless transition. There will be no interruption in services and bank customers should expect business as usual come Friday morning."

JPMorgan Chase acquired the assets, assumed the qualified financial contracts and made a payment of $1.9 billion. Claims by equity, subordinated and senior debt holders were not acquired.

"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.

Washington Mutual Bank also has a subsidiary, Washington Mutual FSB, Park City, Utah. They have combined assets of $307 billion and total deposits of $188 billion.

Thursday evening, Washington Mutual was closed by the Office of Thrift Supervision and the FDIC named receiver.

by Calculated Risk on 9/25/2008 08:41:00 PM

No word from FDIC.

JPMorgan announces investor conference call:

JPMorgan Chase & Co. (NYSE: JPM) will host a conference call at 9:15 p.m. (Eastern Time) tonight, September 25, 2008. You may access the conference call by dialing 1-877-238-4671 (U.S. and Canada) / 1-719-785-5594 (International) - access code: 814030 or via live audio webcast at www.jpmorganchase.com under Investor Relations/Investor Presentations. Materials and further communication will be available on this website at the time of the call.

by Calculated Risk on 9/25/2008 07:55:00 PM

Note: Live bloggin' the confence call at 9:15 ET.

CNBC reports: FDIC to Seize WaMu and Sell Deposits to JPMorgan

The Federal Deposit Insurance Corp will seize Washington Mutual and sell its deposits to JPMorgan Chase for an undisclosed sum, CNBC has learned. The deal is expected to be announced during a Thursday night conference call at 9:15 p.m. ET.

JPMorgan announces investor conference call:

JPMorgan Chase & Co. (NYSE: JPM) will host a conference call at 9:15 p.m. (Eastern Time) tonight, September 25, 2008. You may access the conference call by dialing 1-877-238-4671 (U.S. and Canada) / 1-719-785-5594 (International) - access code: 814030 or via live audio webcast at www.jpmorganchase.com under Investor Relations/Investor Presentations. Materials and further communication will be available on this website at the time of the call.

A replay of the conference call will be available beginning at approximately 1:00 a.m. on September 26 through midnight, Thursday, October 9 by telephone at (888) 348-4629 (U.S. and Canada); access code: 942856 or (719) 884-8882 (International). The replay will also be available via webcast on www.jpmorganchase.com under Investor Relations, Investor Presentations.

From the WSJ: J.P. Morgan to Rescue Faltering WaMu

J.P. Morgan Chase & Co. was expected to announce as early as Thursday night a deal to acquire the bulk of Washington Mutual Inc.'s operations in a deal that would mark the end of independence for what once was the largest U.S. thrift.

Looking for details ...

From the NY Times: Regulators Broker Deal on Washington Mutual (hat tip Walt)

Washington Mutual, the nation’s largest savings and loan, agreed Thursday to sell assets and some branches to JPMorgan Chase in a government-brokered deal to rescue the troubled bank, according to people briefed on the deal.

The deal is expected to be discussed at 9:15 p.m. on a conference call for investors held by JPMorgan.