Trader Talk

Street Wants To Be Re-Liquefied--And JP Morgan's Coup

The Street is in unanimous agreement about one thing: the system needs to be re-liquefied. Soon. HOW you get to that point may not be as important as just GETTING there.

The consensus is that if nothing gets done, the market will crash. A minority note that with the consensus overwhelmingly believing that, it is unlikely to happen. Few are willing to make that bet now.


1) Last night, JP Morgan announced that it acquired ONLY the banking operations of Washington Mutual for $1.9 billion in cash to the FDIC. They will mark down the loan portfolio by $31 billion.

They DID NOT buy the holding company's assets and liabilities, the senior unsecured or subordinated debt, and preferred stock.

JP Morgan also will be raising $8 billion in a common stock offering.

This is a coup for JP Morgan: they get the branches in the west and Florida that they coveted (and did not have), the deal is accretive in 2009, and they now become the largest depository institution in the U.S.

This leaves almost no value for WaMu common and preferred shareholders, and, it seems, most of the debtholders.

2) Financials: Wachovia down 23 percent pre-open; European banks like UBS and Lloyds down 8 percent.

Morgan Stanleydown 13 percent. Remember, Mitsubishi has not yet put up a dime to buy into Morgan Stanley, despite the proposal to buy up to 20 percent of Morgan.

3) KB Homedown 7 percent on a terrible report (loss of $6.19 excluding gains from discontinued operations, vs. estimates of a loss of $1.25). "Market fundamentals appear unlikely to improve significantly in the near term," CEO Jeffrey Mezger said.

Other builders like Lennar and Hovnaniandown 8 to 9 percent pre-open.

  • WaMu Folds, JPMorgan Buys Assets
  • Poll: When Will Deal Happen?
  • Should Buffett Negotiate Deal?
  • Who's Afraid of Salary Cap?
  • Americans Split on Bailout
  • How Exactly Will Bailout Work?
  • How to Trade Bailout
  • S&L Rescue Now Looks Easy
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    New from

    - The Dow 30 at a Glance


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