Friday, January 11, 2008

Who will buy WaMu?

Time to play the guessing game for Wall Street rumors. When Countrywide drew down their credit line for $11.44 billion on August 16, the lead bank was JPMorgan, with $6.44 billion due May 7, 2008, and $2.64 billion due May 11, 2011. Tonight JPM is breathing easier.

Cramer mentioned Washington Mutual on Mad Money tonight, as the next rumored buyout candidate. If Bank of America gets a sweet deal with Countrywide (some put protection) look for various rumors to be thrown around with JPM being mentioned as an acquirer.

Today Treasury said they were not instrumental in suggesting that BofA buy Countrywide. That hasn't stopped some from speculating that BofA had some sour derivative contracts with CFC, and thus, the shotgun marriage. Here's what Jim Sinclair had to say:

Let us assume one of the largest mortgage entities, Countrywide, who would have certainly been a significant player in the credit derivative market, has a very major credit derivative position with Bank of America. Lets' assume that Countrywide was the entity that had the obligation to perform, but now clearly can't. If Bank of America was to buy the non-performing other side of the many transactions and Countrywide become one entity with Bank of America, as they would, would the transactions between them not evaporate in the merge? It absolutely would. What would you then have to mark down on those specific transactions? I believe NOTHING would have to be marked down any further as two sides of the transaction became one.

So don't be surprised if they float Indymac (IMB 5.78) to be on the auction block either. The longs are looking for action and the shorts will now be nervous, as these stocks are no longer a one way bet.

And these mergers happen at the final bottom in these stocks.


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