As I suggested yesterday, last Friday’s so-called “global settlement agreement” was choreographed primarily as “smoke and mirrors” to cover up the questionable dealings between fdic and jpm in relation to the wamu seizure and fire sale. It was also designed partially as a bargaining floor with severely lowered expectations for pressuring equities for next rounds of negotiations. (See my post “Global Settlement” or Smoke and Mirrors? ” ) After giving some thoughts to the second point, I’d like to expand it a little more, and come up with three possible settlement outcomes.
(1) My 1st settlement scenario: the debtor, jpm and fdic propose to the EC a very lowball offer (slightly better than last Friday’s “sell-out” style, sham deal. With no single ally at the negotiation table, facing an uncooperative, even outright hostile board of directors and its hired guns, the EC has some ammunitions (its own evaluation of the true value of wmi estate and dirty laundries of jpm/fdic), but it has no control and can’t strike really hard at the adversaries (at least not yet). For whatever reasons, the debtor’s BOD and its attorneys decided to side with our adversaries. Maybe they just want to make the creditors whole and go away; maybe Weil and co. do not wish or dare to burn the bridge to jpm; or maybe the BOD wants to protect their buddies of former wmi/wamu management if the 2004 discovery goes deeper and deeper. No matter what the reasons are, the parties which control the litigation/negotiation process (the BOD and weil) are not our friends. The EC has been sidelined so far. Under such adversary condition, it may have no choice but to accept the lowball offer.
(2) Let me quickly jump to my 3rd or last/best scenario before I explain the 2nd. As the EC proposed and planned, the shareholders will have by April 23rd their first annual meeting in more than two years. If, this is a very big “if”, the shareholders meeting and a new shareholder friendly (fingers crossed) BOD materialized. With a new BOD, weil’s gone, the control of the litigation/negotiation is shifted to the EC and its legal counsel. Under such condition, jpm and its chief can forget about their boasted “we’ll win them all” line. The EC can swing a big stick (true valuation and 2004 discovery) left and right, smashing at its adversaries. In this scenario, the shareholders will receive a much better or the best possible settlement outcome.
3) My 2nd settlement scenario. As we know, the proposed schedule for the shareholders meeting is April 23rd. If everything goes as planned, we may still not have the meeting until more than a month later. In between, the negotiations are going on, only at this time, I believe, with a new player the EC and its counsel at the table. Even the shareholders meeting is more than a month away, the prospect of the meeting, a new BOD, and shareholders revolt can pose some serious threats to the debtor, jpm and fdic, and force them to seriously consider sweeten the deal to an acceptable degree, not great but fair. Because of the uncertainties of the events, I think, in this 2nd scenario, the EC will accept the sweetened offer, which will be neither overly low nor as high as we wish for, but in the middle.
Some people blamed the EC and its counsel for lack of awareness about Friday’s deal. I don’t. With the current board and weil in total control, the EC can do very little about it. In fact, I commend the EC and its counsel for their foresight, wisdom, and courage to call for shareholders meeting and the replacement of current BOD. They even had the foresight to set the counting date of shareholders at 3/3, a week before the tremendous shake-off of shares in anticipation of manipulation. They know the tricks and are fully prepared. I have faith in them. As I said yesterday, once we are called for, it is so important for us shareholders to have as many people as possible to show up at the annual shareholders meeting, or at least, send our votes in on time.
Part of this game is about valuation and discovery. The other part of the game is about the control and maneuvering. If we shareholders can deliver to the EC a new BOD, it can crash any adversaries no matter how powerful they are.
(note: in all scenarios I suggested, commons are included.
Disclaimer: just my own analysis/opinion. Not investment advice in any way or form.)