naked capitalism

cent21 says:

Could be a bit of piling on after the merger, to book losses. The current incentive for Wachovia accounting may be to get the bad news behind them and set the stage for upside later.

ndk says:

Strongly agree with cent21 and a, and throw in a heaping measure of my own disgust.

Art says:

It may be so cent21, but this is once again greed is good approach from them. Because investors will be VERY affraid to enter markets again after such a write down, and start questioning if same thing is true for other banks. So yes, they might do it for themselves, but the flight will be from the whole world.

Anonymous says:

Is that why WFC took the golden Kool-Aid from Hank Paulson? Allegedly didn’t need more capital, then got religion when Wachovia showed them the books.

Anonymous says:

10:26, no one is going to turn down low cost preferred from the government when the government is in the business of confiscating shareholder equity whenever it arbitrarily determines some boundary of weakness has been crossed

mxq says:

Ohhh another writedown too big for my pedestrian mind to fathom…

$18bn from wachovia/goldenwest

over the last month joins

$31bn from sprint/nextel

and

$39bn from GM

Don says:

Don’t worry. They have TARP.

It doesn’t get much clearer than this that our credit stimulus plan without a stimulus was negotiated by the government with far too generous a deal. From the Washington Post:

http://www.washingtonpost.com/wp-dyn/content/article/2008/10/21/AR2008102102520.html?hpid=topnews

“When the Treasury’s program was announced last week, some bank executives said they didn’t need the money and resented the federal intrusion. But in a number of earnings calls and interviews in recent days, several bank executives were more receptive.

The federal deal is relatively sweet in financial terms — it requires banks to pay 5 percent interest annually on the investment over the first five years — and some bankers said they would not pass it up.

A number of local banks are strongly considering applying for the Treasury program.

Virginia Commerce Bank, which has 26 branches and $2.2 billion in deposits, said it is looking to add $25 million to its capital base by the end of the year. In the past, the company said it was considering issuing stock to raise that capital, but the bank said yesterday that it may apply to the Treasury’s program.

“Quite frankly, it is a very attractively priced alternative,” chief executive Peter A. Converse told analysts.”

How about this, from the NY Times:

http://dealbook.blogs.nytimes.com/2008/10/21/gmacs-hope-lies-in-future-as-a-bank-hedge-fund-says/#comment-382536

“Only a week after the government announced $250 billion in capital for banks, some investors are getting creative in their suggestions on who should qualify.

David Bullock, managing director of Advent Capital Management, wrote a letter to the chief financial officer of GMAC on Tuesday, suggesting that the former General Motors financing arm turn itself into a bank holding company so that it can grab some of the cash.
In Europe, Mr. Bullock pointed out, parts of the auto industry are benefiting from bank rescue.plans. So why not in the United States?.”

I’m not making this up. Here’s my comment:

“Only a week after the government announced $250 billion in capital for banks, some investors are getting creative in their suggestions on who should qualify.

David Bullock, a hedge fund manager in New York, wrote a letter to the chief financial officer of GMAC on Tuesday, suggesting that the former General Motors financing arm turn itself into a bank holding company so that it can grab some of the cash.”

Come on ! How onerous can the terms of TARP be that people who don’t need it are starting to line up to receive it? What more proof do we need that the government negotiated a terrible deal for the taxpayer?

The next thing we know, Google and Apple will be turning themselves into banks. Can I have myself declared to be a bank?
— Posted by Don the libertarian Democrat

Cool Head says:

I smell another scam here. The so called “goodwill writedown” is either an attempt to artificially show a much higher loss to get a bigger pie of the bailout cake, or it means that Wachovia was used to cooking its books and now is forced to show its actual hand of cards (actually a house of cards) before the takeover by Wells Fargo. Everybody’s seem to be jumping on the gravy train. Hey! Wait for me! I want to get on too…but sadly I am not a bank

tompain says:

Doc-

Anyone who acquires publicly held companies will have goodwill. Particularly if they buy publicly held companies with brand names or other intangible assets. I have never heard anyone suggest that Warren overpays for the companies he acquires, but that’s basically what you are contending if you think his goodwill is phony. You could be right. Probably not, though.

Cool head – don’t be so paranoid. This writedown is effectively nothing more than a restatement of the announcement that WB was being purchased for $7. From that moment on, this writedown was inevitable.

tompain says:

Mara, the ability to gather cheap deposits is just as good an intangible asset as a brand name

Goodwill is just an accounting creation. It’s not worth the attention being given to it. It has little effect on anything in the real world.

kfunck1 says:

I’d just like to comment that the positions about goodwill being irrelevant in the announcement are spot on. Of course, you could pay attention to the other numbers, all of which show the dire position the company was in. GW is indeed simply an accounting fiction; its how you make things balance, and as someone commented earlier, exists in almost any merger or acquisition. I would be willing to bet that if you could break down that gw, the majority of the writedown would be out of gw attributed to the Golden West acquisition.

Richard Kline says:

Oh, and s at 11:30, I _totally_ agree with you. Fictions should be zeroed out at every financial, but a few are still being given irrational faith by the rest of the markets. Goodwill doesn’t get you on the last jumbo jet out of Financial Saigon; only cold hard assets punch that ticket.