The day before regulators seized the banking operations of Washington Mutual and sold it to J.P. Morgan Chase in 2008, Wells Fargo & Co. made an 11th-hour pitch to buy the Seattle institution if it went down.
In a Sept. 24, 2008, letter to Federal Deposit Insurance Corporation Chairman Sheila Bair, Wells Fargo Chairman Richard Kovacevich proposed that Wells could assume all deposits at the “best premium we could offer” and perhaps acquire $50 billion to $100 billion in assets if the FDIC would allow for a 60-day review period.
The message is the first evidence that an institution other than J.P. Morgan and Citigroup wanted to purchase a failing Washington Mutual. The letter is among a trove of documents recently made public by a court-appointed examiner in Washington Mutual’s bankruptcy case.
(Click HERE to read Kovacevich’s email to Sheila Bair.)
The FDIC looked at the proposal but didn’t pursue it, according to a person familiar with the matter. Wells Fargo declined to comment about its late pitch for a piece of the nation’s largest-ever bank failure.
The structure proposed by Wells Fargo had not been offered or discussed with other banks and it was too late in the process to offer a similar opportunity to additional bidders, according to the person familiar with the matter. Bids were due the evening of Sept. 24, 2008.
Bair notified J.P. Morgan CEO James Dimon via email at 8:23 p.m. that he was the winner, according to another document unearthed by the examiner and recently made public.
“You are the high bid,” she wrote in the Sept. 24, 2008, message, according to the document. The subject line of the e-mail read “Congrats.”
Regulators did speed up the action, taking WaMu down on Thursday, Sept. 25. J.P. Morgan assumed all deposits and most assets for $1.88 billion, saving any costs to the FDIC’s insurance fund.
Wells Fargo’s failed purchase attempt certainly didn’t deter the bank from going after Charlotte, N.C.-based Wachovia a week later. Its purchase of Wachovia transformed the San Francisco company into the nation’s fourth-largest bank as measured by assets.
Kovacevich, who stepped down as Wells Fargo chairman at the end of 2009, said in his Sept. 24, 2008, letter to Bair that Wells Fargo was unable to submit a bid that met the FDIC’s parameters because there wasn’t enough time to conduct the proper due diligence and because of “the extreme uncertainty associated with potential losses to Washington Mutual’s loan portfolio.”
Instead, he proposed an alternative structure in a series of bullet points, arguing that his approach “could serve as a basis for a bid in the event Washington Mutual is placed in a receivership or conservatorship”:
* Wells, he wrote, would assume all deposits in exchange for “the best premium we could offer.”
* All other liabilities would be assumed by the FDIC, and Wells would get up to 60 days to decide which it wanted to assume.
* FDIC would hold all assets, and Wells Fargo would get 60 days to decide which to purchase. He said Wells Fargo would likely buy between $50 billion and $100 billion. Any assets not acquired by Wells Fargo would be retained by the FDIC, but Wells Fargo would agree to manage and dispose of the assets it didn’t want to hopefully “maximize recoveries for the FDIC.”
Kovacevich argued that a “a bid structured along these lines would both be in the best interests of Wells Fargo and its shareholders, and would allow the FDIC to dispose of Washington Mutual’s assets and effect a resolution measured in terms of expenditures (long and short term and direct and contingent) in the manner the least costly to the FDIC when compared with other alternatives.”
“If the FDIC is interested in discussing this proposal further, please contact me or John Stumpf,” the bank’s chief executive officer.
That never happened. The FDIC decided the Wells Fargo proposal could not be considered, even as a non-conforming bid.
blogs.wsj.com/deals/2010/12/02/...os-secret-offer-to-buy-wamu/
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