Why is FDIC not being held accountable for its failure in supervision
but praised for its efficiency in shutting down banks? Why is FDIC
practically using our tax money to share losses and wiping out
shareholders because it failed its job to supervise properly?

"Regulators shut down the John Warner Bank of Clinton, Ill.; the First
State Bank of Winchester in Winchester, Ill.; the Rock River Bank of
Oregon, Ill.; the Elizabeth State Bank of Elizabeth, Ill.; the First
National Bank of Danville in Danville, Ill.; the Founders Bank of
Worth, Ill.; and Millennium State Bank of Texas, based in Dallas."
http://www.nytimes.com/2009/07/03/business/03banks.html?ref=business

"The FDIC and The First National Bank of Beardstown entered into a
loss-share transaction on approximately $20 million of The First State
Bank of Winchester's assets."
http://www.istockanalyst.com/article/viewiStockNews/articleid/3330752

All these banks except for First National Bank fell under FDIC
supervision (Class NM)
*NM = commercial bank, state charter and Fed nonmember, supervised by
the FDIC*
http://www2.fdic.gov/idasp/main.asp

This is the first page of the latest failed bank list on the FDIC
website; 11 out of 20 were under its supervision.
http://www.fdic.gov/bank/individual/failed/banklist.html

Mirae Bank (NM) June 26, 2009
MetroPacific Bank (NM)
Horizon Bank (NM)
Neighborhood Community Bank
Community Bank of West Georgia
First National Bank of Anthony
Cooperative Bank (NM)
Southern Community Bank (NM)
Bank of Lincolnwood (NM)
Citizens National Bank
Strategic Capital Bank (NM)
BankUnited, FSB
Westsound Bank (NM)
America West Bank (NM)
Citizens Community Bank (NM)
Silverton Bank, NA
First Bank of Idaho
First Bank of Beverly Hills (NM)
Michigan Heritage Bank
American Southern Bank (NM) April 24, 2009

Why would anyone want to buy any bank? As long as our regulators don't
follow rules nobody would want to deal with the government. Sheila
Bair now says these private investors must maintain a tier I capital
ratio of at least 15% but back when Wamu had a tier I capital ratio of
8.4% (yes not as high as 15% but a pretty good number at that time)
she still seized it.

"The FDIC today released a memorandum designed to provide guidlines to
private equity firms looking to own banks.  A summary is (emphasis
mine):

Pursuant to the proposed policy statement, the Investors’ holding
company will be expected to provide for the capital support of the
acquired or de novo depository institution through a strong initial
capital contribution – maintaining a minimum 15 percent Tier 1
leverage ratio for a period of at least 3 years. Staff believes that
up-front capital protection for the depository institution would
provide an effective cushion that could have a lasting impact...

Now, some might recall that banks were judged on their Tier 1 ratio
once upon a time.  Regulators then swung to tangible common equity and
settled into tangible capital.  But now that the danger has passed and
all is better (right?), the FDIC swings back to tier 1 and well
capitalized (recall that WaMu and WB were "well capitalized when they
were defacto siezed)."
http://seekingalpha.com/instablog/153397-boneyard/11078-fdic-shepardi...

FDIC now has the power to borrow up to $500 billion, and is that not
tax money? Bair's original proposal was to collect only $27 billion
from special assessment fees this year so how long do you think it
will take FDIC to pay back whatever it borrows? Its DIF ratio
continues to plummet; as of last quarter, it was at 0.27%. That means
for every $100 you deposit you can really only get $0.27 back.

Wait, did I forget to mention FDIC is also backing over $300 billion
of bank bonds for Goldman Sachs etc? Its great GS is paying back TARP
but why should it give out record bonus this year when the US
government is still backing its bonds?

*imho*

On Jul 3, 5:53 pm, PP Y <papaya2...@gmail.com> wrote:

The FDIC is only the *backup* regulator for state-chartered Federal
Reserve Nonmember (NM) banks.  It generally cannot take direct action
against a state-chartered institution except in the most egregious of
circumstances, or in the case of direct violation of one of the FDIC-
enforced consumer protection laws (i.e., the FTC Act).

The overwhelming majority of our nation's banks are state-chartered
Fed nonmember banks.  Even if 70% of failures fell under the NM
classification, that would be relatively low given the overall
prevalence of the NM charter class in the market.  By far the largest
failure and assistance liabilities for the FDIC (the five Citigroup-
linked banks/thrifts, Bank of America, IndyMac, BankUnited, ...) were
all either national banks regulated by OCC, or thrifts regulated by
OTS.  The state regulators have actually done a far better job than
OTS, OCC, etc., at enforcing the capital rules.

The FDIC does not seize banks, nor decide which ones are open and
which ones are closed.  The FDIC can only accept or decline
appointment as receiver for banks that have already been closed by
their primary regulator.  The agency that closed WaMu was the Office
of Thrift Supervision, not the FDIC.

Furthermore, the chief objective of the banking regulators is *NOT* to
minimize the number of failures, but rather to minimize the total cost
to the DIF (and therefore the risk to the credit of the United
States).  WaMu was closed not because its capital was insufficient,
but because it was losing deposits at such a rate that its capital
would have *become* insufficient in a matter of days.  With WaMu
losing $10 billion a month in deposit base and the run accelerating as
the damage was tallied, OTS recognized that the bank had lost
depositor confidence and would run out of capital, causing a huge loss
to the Deposit Insurance Fund.  WaMu, rather than being simply
undercapitalized, was operating in an "unsound condition", hence its
closure.

WB was never actually seized; OCC didn't close the bank, nor did it
place it in conservatorship.  The FDIC had a plan for an Open Bank
Assistance & Acquisition (A/A) transaction with Citigroup, but it
deliberately allowed Wachovia to remain open.  Wachovia ended up being
bought in an unassisted sale by Wells Fargo and Co., hence no federal
intervention.

As noted above, WaMu was closed because of a crippling ($300 million
per day) deposit run, not a capital problem.

The FDIC borrowing authority is only $100 billion, not $500 billion.
Chris Dodd proposed the $500 billion number when the health of
Citigroup, Bank of America, et al. was in question, but it didn't end
up going that high in the final legislation.

Treasury borrowing is in fact borrowing tax dollars.  However, the
FDIC must not only pay back the principal of what it borrows, but also
the interest (i.e., the borrowing cost).  The taxpayer doesn't
actually lose anything by way of the FDIC's borrowing, which is what
happened when the FDIC borrowed money for the RTC's wind down in 1991.

I don't think you understand how insurance systems work.  The idea is
that you take money from all the banks, and insure them all against
failure.  You can't collect a dollar for every dollar of deposits, or
you'd have no deposits.  So, what you do is, you collect the statutory
1.5% of those deposits and then you basically pray that the banks that
fail at any one time hold less than 1.5% of deposits.  Typically, it's
actually a sane bet, as large banks are unlikely to be allowed to fail
and even small banks don't routinely fail.

Even in a good environment, when the DIF is at its statutory maximum
and the banks pay nothing for deposit insurance, only $1.50 per $100
of deposits is backed by actual cash in the insurance fund.

TLGP backing is virtually risk free for the FDIC; the odds that a
large bank like Goldman Sachs would:

A) fail; and
B) not be rescued by the Federal Reserve's printing press

are essentially zero, as most of the big banks have been explicitly
labeled too big to fail.

Also, the FDIC is paid a fee for its guarantee, just as it is for
deposit insurance.

TLGP backing of banks' debt is due to end in a few months.  One of the
conditions for exiting TARP (and therefore paying unregulated bonuses)
was that the bank issue unbacked debt without an FDIC guarantee.  Once
the FDIC guarantees on existing debt expire at maturity, the bank will
have been completely re-privatized.

Washington Mutual Bank (WAMU) shareholders are uniting to challenge
the actions of the FDIC (the Federal Deposit Insurance Corporation)
and JPM (JP Morgan) prior to the seizure of Washington Mutual bank.
Shareholders contend: 1) that these actions were unjustified 2) that
they were unethical 3) that Washington Mutual Bank was not failing.
As evidence of our claims, reports now surfacing indicate the
liquidity of the bank was much better than the public was led to
believe; by most accounts, the bank had enough funds to cover the
withdrawals by depositors.  Washington Mutual executives knew these
facts; however, their claims made days before the seizure that the
bank was in good health were ignored.  We the concerned shareholders
of WAMU contend that the FDIC was not right in doing so and has caused
irreparable harm to the WAMU stockholders, to the banking community
and to the markets in general.  As a result of this action,
shareholders of thousands of companies throughout the world have lost
trillions of dollars since.

The FDIC seized Washington Mutual Bank saying there had been a bank
run amounting to 16.7 billion dollars in 10 days.  The reason this
money was withdrawn from the bank is unknown.  The FDIC saw money
moving out of larger accounts and assumed a run was in progress.  Just
2 weeks before the FDIC seized the bank WAMU had worked out a solid
business plan with the OTC (Office of Thrift Supervision).  At the
time of seizure, WAMU had access to $50 billion in assets: sufficient
liquidity to handle all their obligations.  The situation, however,
seemed different to the FDIC, whose reserves were low as a result of
not collecting insurance premiums from 1996-2006 and the bank failures
in the previous weeks.  Appointed officials at the FDIC were concerned
that if the failure of Washington Mutual was followed by other bank
failures as well, the agency would not be able to handle the
situation.  Despite this concern, the FDIC had the ability to borrow
$30 billion from the Federal Reserve; however, for some reason it did
not do so.  The FDIC’s move was more about protecting the federal
deposit insurance company than about protecting the insured.

In short, the FDIC acted prematurely, behind closed doors.  The
Washington Mutual Executives had no prior knowledge of the FDIC’s
plan. In fact, at the time of the seizure WAMU was in the midst of
sale negotiations with several other banks, and had been given no
deadline by the FDIC to find a buyer.  Despite WAMU’s good-faith
efforts to find buyers, banks which were contemplating buying
Washington Mutual had been notified by the FDIC that the FDIC was to
auction off the bank, again without WAMU’s knowledge.  This FDIC
action prevented a sale from being made.  Even worse for WAMU, behind
closed doors, the FDIC was offering prospective buyers a much sweeter
deal than the ones WAMU was negotiating.  The FDIC arranged for
JPMorgan to purchase the $300 billion dollar corporation for the
bargain price of 1.9.

The FDIC needs to be held accountable for its short sighted action
which has caused havoc throughout world markets.  The FDIC had many
options in the event that WAMU faltered.  The option chosen, seizing
the bank and selling it overnight for a miniscule fraction of its
value in a clandestine deal with JPMorgan, was the worst of any
options they had.  Did the FDIC act appropriately? Most shareholders
don’t think so and they want the FDIC to answer for that.

The result of the FDIC’s hasty and secretive action was that the
shareholders of Washington Mutual Bank lost billions of dollars.
Shareholder portfolios were emptied overnight - because of collusion
between the FDIC and JPM in weeks leading up to the seizure.  Now,
shareholders seek redress.

Never has the law been applied with such disregard for its intention.
Government regulators, supposedly the ones responsible for protecting
us, circulated insider information about the bank to its competitors
and precipitated a catastrophic collapse whose repercussions are still
being felt today.

Coincidentally, JPMorgan has been the institution which has profited
handsomely from these failures.  Coincidentally, the former head of
the SEC (Securities and Exchange Commission) whose role is to oversee
stock trading, works at JPMorgan, and this week was accused of private
conversation causing difficulties that may have resulted in another
recent bank failure, that of Bear Stearns.  JPMorgan has also been
accused of interfering in Lehman Brothers’ access to $5 billion
dollars which helped catapult their demise.  And the company has been
accused of denying WAMU access to $5 billion dollars they had on
deposit with JPMorgan.

Is this coincidence?  We think not.  We demand the FBI and the
legislature thoroughly investigate the relationships and actions of
the OTS , the FDIC, the SEC and JPMorgan management.  We do understand
that the government is currently investigating Washington Mutual, but
we contend these other institutions need to be investigated as well.

One of our goals is that the assets or at least the asset value of
Washington Mutual be returned to the stockholders, just as they were
in the lawsuit filed by First City Bancorporation in 1992.  In that
suit, (1993) the FDIC was forced by the courts to return 145 million
dollars to creditors and depositors, after the seizure of that bank
and its assets.  The same situation happened here.  Consequently, our
members feel that there seems to be legal precedent for holding the
FDIC accountable for their actions.  Holding the FDIC accountable is
exactly what the members of this organization intend to do.

On Jul 10, 2:28 am, matt <m...@matthewmurphy.net> wrote:

...

read more »

How J.P. Morgan Raised $11.5 Billion in 24 Hours

http://blogs.wsj.com/deals/2008/09/29/how-jp-morgan-raised-115-billio...

Three weeks before JPMorgan bought WaMu’s deposits for $1.9 billion,
officials at the Federal Deposit Insurance Corporation had called
JPMorgan to say that the FDIC was carefully monitoring WaMu and that a
seizure of its assets was likely. There have been no news articles
indicating that the other banks were notified at that time.

http://blogs.wsj.com/deals/2008/09/29/how-jp-morgan-raised-115-billio...

Since the seizure, JPMorgan and the FDIC have challenged Washington
Mutual Inc (the Holding Company that owned WMB) on tax benefits of
writing off its losses prior to the seizure.

http://www.reuters.com/article/governmentFilingsNews/idUSN30259446200...

01/22/09: JPMorgan objects to having to show what they bought (file
claim) by 3/31/09.  That may be because they can't; there is no list
in the Purchase and Assumption Agreement (3.1a), although the purchase
agreement cites there should be. The purchase agreement is incomplete.
JPMorgan objected to having to show any claim by the claim filing
deadline. Their objection was overruled by Judge Walrath, the judge
presiding over the bankruptcy case.

http://www.kccllc.net/documents/0812229/0812229090122000000000001.pdf

Claim against the FDIC

02/05/09: Weil and Gotshal have filed a claim against the FDIC
(December 30, 2008).  WMI was given $0.00 for the bank, despite a book
value well over $20 billion at the time of seizure. The FDIC failed to
get a reasonable price, even though they are required by law to
maximize the return on the assets seized as well as to minimize the
impact to the FDIC fund.  There are many differing opinions on what
the value of the bank was, but of the sources we could find, none felt
the bank was worth a mere $1.9 Billion. JPMorgan got the bank at a
substantial discount, as they have documented well in their SEC
filings. They even booked a $1.9 Billion gain the next quarter – not a
bad return for three months.  The FDIC also gave JPMorgan many
subsidiaries.  Some of those subsidiaries may not have been on the
banks books, and in fact may have belonged to the parent holding
company, Washington Mutual Inc (WMI).  WMI filed a claim against the
FDIC's receivership on 12/30/2008.  According to a Weil & Gotshal
representative, the claim submitted to the FDIC was denied in late
January 2009.

Page 9
http://www.kccllc.net/documents/0812229/0812229090205000000000005.pdf

SEC did not do its job; illegal short selling damaged WaMu

7/21/08: SEC bans “naked” short selling in certain financial stocks.
Washington Mutual is not included on the list.

 http://www.sec.gov/rules/other/2008/34-58166.pdf

http://www.mortgagenewsdaily.com/7222008_Short_Sell_Banks.asp

9/17/08: SEC bans “naked” short selling of all stocks.

 http://www.sec.gov/rules/other/2008/34-58572.pdf

9/18/08: SEC bans short selling of 799 financial companies, including
Washington Mutual.

 http://www.sec.gov/rules/other/2008/34-58592.pdf

General resource on the surrounding economic legislation and SEC and
FED actions:

http://www.philadelphiafed.org/payment-cards-center/legislative-updat...

Did the FDIC do their job properly after the seizure of Washington
Mutual?

Sheila Bair, in a 60 Minutes episode which aired on March 8, 2009,
said that the FDIC did not shutter big banks. Washington Mutual was a
big bank and the fallout from its seizure was widely felt in the US
markets and indeed around the world. Stockholders were essentially
wiped out in this seizure, due to the fact that the FDIC permitted the
deal to be written with no regard to provisions for the stockholders.
Although it is unknown exactly what the total losses were, it is
estimated it could be as high as $30 billion. Many of these
stockholders were Pension Funds, large institutions, as well as
individuals 401K's, IRA's and other private accounts. The question at
this point is whether the FDIC acted appropriately in only getting 1.9
Billion dollars, and allowing the stockholders to be left out of the
transaction, and completely out in the cold. Many institutions were
severely impacted by the sale agreement the FDIC arranged. The sale
agreement had far reaching, adverse effects both on portfolios and the
market in general.

9-17-08: A WSJ article states that WaMu has hired Goldman Sachs to
find a buyer of the bank.

9-18-08: WaMu's rating slips to a 4 and is placed on the FDIC's watch
list, a fact kept secret at the time to prevent a self-fulfilling run
on the bank. A 4 rating reflects financial, operational or managerial
weaknesses that threaten a bank's financial viability.

9-19-08, Friday: FDIC talks with JPM about WaMu. (From JPM
presentation on 2-26-09)

9-22-08, Monday: FDIC meets with JPM. (From JPM presentation)

9-24-08, Wednesday: 4 banks reportedly submitted bids/plans to FDIC by
the deadline set by the FDIC:

FDIC Chairman Sheila Bair told reporters on Thursday that after an
open process to find a buyer failed, the agency turned to its
secretive auction process in which bidders place their offers on a
secured website. The auction turned out to be not so secret when a
media leak prompted early seizure of the bank. The "leak" has not been
identified.

Which other organizations bid for WaMu, and the contents of those
bids, have not been revealed by the FDIC. Here is an abbreviated
timeline of what happened.

9-24-08, Wednesday 6:44PM: JPM submits bid to FDIC of $1,888M

9-25-08, Thursday: OTS seizes WaMu and gives it to FDIC

9-26-08, Friday: FDIC sells WaMu to JPM for $1,888,000,000.

2-26-09: JPM states that the WaMu transaction was 'very non-
traditional'. (From shareholder presentation).

Did the FDIC do a fair and impartial auction?

Were all banks given the same information at the same time? By some
reports JPMorgan knew of the auction 3 weeks prior. Did other banks
have that same advantage? JPM was notified on Friday, 9-19 that they
would get the bank. That was days before the auction officially began.
Of note, JPMorgan raised approximately $11 Billion for the purchase,
yet they managed to buy the bank for a mere $1.9 Billion. The auction
permitted the banks to bid $0 for the bank, and totally disregard the
stockholders and bondholders. Although stockholders and bondholders
are not technically the FDIC's responsibility, was it wise or fair to
totally disregard the interests of these stakeholders?

FDIC regulations as quoted from their official website:

http://www.fdic.gov/regulations/laws/rules/1000-1220.html#1000sec.11d

12 U.S.C. 1821(d)
13) ADDITIONAL RIGHTS AND DUTIES.--
(E) DISPOSITION OF ASSETS.--
(i) maximizes the net present value return from the sale or
disposition of such assets
(ii) minimizes the amount of any loss realized in the resolution of
cases
(iii) ensures adequate competition and fair and consistent treatment
of offerors

How Did JPMorgan Chase (JPM) Profit from the purchase of WaMu's
banking assets for $1.888 Billion?

JPMORGAN CHASE Acquires the deposits, assets and certain liabilities
of WASHINGTON MUTUAL’S banking operations

http://tinyurl.com/aq3v4w

JPM's Bid For WaMu via FOIA Request

http://wmish.com/docs/gib/JPMorgan_Bid_September_24_2008.pdf

What Did JPM Purchase?

It is still not clear exactly what JPM purchased from the FDIC on
09/25/08, because their Purchase and Assumption agreement didn't
disclose exactly what was sold, other than as stated in paragraph 3.1,
"...all of the assets (real, personal and mixed, wherever located and
however acquired) including all subsidiaries, joint ventures,
partnerships, and any and all other business combinations or
arrangements, whether active, inactive, dissolved or terminated, of
the Failed Bank whether or not reflected on the books of the Failed
Bank as of Bank Closing." This statement clearly did not address the
possibility of joint ownership of assets by Washington Mutual Bank
(WMB) and their holding company, Washington Mutual Inc. (WMI). The
seizure of assets which were not on WMB's books leaves open the real
possibility that some of those assets actually belonged either solely
to WMI or were owned jointly and as such were not rightfully seized.

It appears that that Schedule 3.1a had been intended to be more
specific regarding the assets sold. This section is missing, despite
being referenced repeatedly in the version of the document posted
initially on the FDIC's website.

http://www.fdic.gov/about/freedom/Washington_Mutual_P_and_A.pdf

An early rough draft was obtained by FOIA request:

http://wmish.com/docs/gib/Washington_Mutual_Bank_Closing_Book.pdf

What Did JPM Gain?

JPM had long coveted WaMu's West coast branch network, and had earlier
offered $8 per common share for the entire company, an offer that
would have assumed all debt and preferred stock of both WMB and WMI.
It was rebuffed at the time for being too low; it was less than WMI
common stock's market price at that time.

Through the seizure and acquisition, JPM expanded its' banking
footprint into states with little Chase coverage. These include
Washington, Oregon, California, and Florida. Along with $307B in
assets they acquired $188B in deposits, 2239 branches, 4,932 owned and
branded ATMs, and 43,198 employees.

They were also given the ability to return any branches they didn't
want to the FDIC. JPM has indicated it would lay off 9,200 employees
and recently indicated they would cut another 2,800 positions through
attrition; the cuts total nearly 30% of WaMu's employees. Included in
the purchase price was $1.5B of real estate or other assets (JPM's
10K, 12/31/08, p 82) and WMB's credit card business.

JPM's 10K, ...

read more »

The OTS seized the bank and placed it into receivership with the FDIC.
Howeveer, I think the OTS was under immense pressure from Paulson and
Bair to seize WaMu. They never gave any written notice to WaMu that
they needed to increase liquidity. The fact that the FDIC/OTS violated
their very own rule on this issue is just one of the glaring problems
with the seizure.

On Jul 3, 5:53 pm, PP Y <papaya2...@gmail.com> wrote:

Taka, clever, thanks for the effort, well done.

On Jul 10, 10:53 am, Dimoncrooks <takamiyada...@gmail.com> wrote: