In re Washington Mutual, Inc., Case No. 08-12229 (MFW) United States Bankruptcy Court, District of Delaware FINAL REPORT OF THE EXAMINER JOSHUA R. HOCHBERG http://www.mckennalong.com/news-advisories-2411.html
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A bank holding company (“Acquiror”) is seeking to acquire another bank holding company (“Target”) which holds a portfolio of higher risk assets (“Assets”) on its balance sheet
In addition to cash and other consideration the Acquiror can deliver to Target shareholders Contingent Value Securities (“CVS”) which track the performance of the Assets and convert into common stock of the Acquiror based on Asset performance
CVS return will be based on asset performance post purchase accounting mark
Initial value of the CVS would be based on the size of the Asset portfolio, and the purchase accounting mark on the Assets
Dividends would be non-cumulative and paid based on an arms length fixed annual rate
Conversion into Acquiror common stock would be mandatory and occur upon the earlier of [5 yrs] and the date on which [80%] of the assets have paid off — Investors receive a variable number of shares
to return a fixed value within a range based on (i) performance of the asset portfolio and (ii) Acquiror stock price on the conversion date
— Alternately, upside can be capped or shared between Acquiror and Target shareholders
Contingent Value Securities Regulatory, Rating Agency & Accounting Considerations
Regulatory & Rating Agency
The securities will be non-cumulative perpetual preferred stock with a mandatory conversion feature, and will qualify as Tier 1 and unrestricted core capital at the Federal Reserve
Rating Agencies will likely treat the security as a mandatory convertible preferred, which would achieve Basket E (100%) at Moody’s and 100% equity credit at S&P (up to 50% of ACE)
Accounting The value of the CVS will vary based on the value of the underlying assets, and will therefore likely be viewed as a
derivative — FAS 133 requires that the derivative should be marked to market on an ongoing basis. Consistent with the
guidance on contingent consideration in FAS141R, the change in fair value would be recorded in current earnings or OCI
— Changes in value in the CVS may be offset by electing fair value accounting on the underlying assets
− Size and timing of mark-to-market adjustments on the CVS may differ from adjustments on the underlying assets due to different assumptions underlying the valuation of each1
Since there is a requirement to deliver a variable number of shares within a range, the CVS will likely receive “if-converted” accounting treatment
To avoid EITF 00-19 issues, the CVS will require a share cap to limit the amount of common shares that could potentially be issued
1 Including volatility of the Acquiror’s share price, shifts in interest rates and shifts in credit spreads
Assets A portfolio of higher-risk mortgage related assets with starting aggregate face or principal amount of $● (the “Starting Unpaid Principal Balance”)
Securities Offered Contingent Value Securities (“The Securities”)
Liquidation Preference Initially $● in the aggregate, or $● per share,
Conversion Date The earlier of (i) the date which is [5] yrs from the issue date, and (ii) the Asset Disposition Date
“Asset Disposition Date” means the last day of the first calendar quarter as of which the Unpaid Principal Balance is [20]% or less of the Starting Unpaid Principal Balance
“Unpaid Principal Balance” means, on any date, the aggregate principal amount of the loans that are part of the Assets on such date
Conversion On the Conversion Date, the Securities will convert into a number of shares of Acquiror common stock equal to the Conversion Valuedivided by the volume weighted average price of Acquiror common stock over the ten day period preceding the Conversion Date,provided that the Acquiror shall in no event be obligated to deliver more shares than the Maximum Share Cap
The “Conversion Value” will equal the sum of (a) the Liquidation Preference minus (b) Aggregate Asset Gains and Losses minus (c) Remaining Expected Losses
“Aggregate Asset Gains and Losses” means the aggregate sum of realized losses and realized gains minus the aggregate sum of expected losses as reflected on the Acquiror’s consolidated balance sheet at inception of the transaction as calculated on theConversion Date by an independent investment banking firm of international standing (the “Calculation Agent”)
“Remaining Expected Losses” means, with respect to Assets still outstanding on the Conversion Date, the aggregate sum ofexpected future losses as calculated on the Conversion Date by the Calculation Agent
“Maximum Share Cap” means [2 times] the Liquidation Preference divided by the volume weighted average price of Acquiror common stock over the ten day period preceding the date of issuance
Dividends Non-Cumulative Dividends will be payable on the Securities as and if declared by the Board of Directors at a rate equal to [8]% per annum applied to the Liquidation Preference of the Securities quarterly on ●,●,● and ● of each year, commencing on ●, 2008 (each, a “Dividend Payment Date”). The period from, and including, a Dividend Payment Date to, but excluding, the next succeedingDividend Payment Date is referred to herein as a “Dividend Period”.
Dividends on the Securities are not cumulative. Accordingly, if for any reason the Acquiror does not declare a dividend on theSecurities before the Dividend Payment Date for a Dividend Period, that dividend will not accumulate and holders of the Securities will have no right to receive, and the Acquiror will have no obligation to pay, a dividend for that period, whether or not dividends onthe Securities are paid in full or in part in the future.
If full dividends on the Securities are not paid for a particular Dividend Period, the Acquiror will not declare or pay dividends on orredeem or purchase any common stock or other junior securities during the next succeeding Dividend Period.
Ranking The Securities will rank junior to all debt of the Acquiror, senior to common equity, and pari passu with all other preferred shares of the Acquiror
Covenants In the charter document setting forth the terms of the Securities (the “Issuance Document”), the Acquiror will covenant as follows:
the Calculation Agent will calculate, for relevant periods and as of relevant dates, the Aggregate Gains and Losses andRemaining Expected Losses (and related definitions used in computing defined amounts) in accordance with the definitions ofthose terms set forth in the Issuance Document; and
at all relevant times, the Acquiror will have entered into and have in full force and effect a “Servicing Agreement” with an “Eligible Servicer”. “Eligible Servicer” means ●; each such Servicing Agreement shall have at least the following terms: ●
adopt a policy to manage the Assets with the objective of maximizing the gains on the Assets, and to adopt that standard as thecore servicing standard in the Servicing Agreement
Servicing Commencing upon issuance of the Securities and continuing through the Redemption Date, there shall at all times be a “Servicer” who shall be an Eligible Servicer. The Servicer shall be responsible for collecting on and otherwise servicing the Assets including assets that are ● or more days delinquent or are characterized as non-performing assets. The initial Servicer shall be jointly agreed upon and appointed by the Acquiror and the Target.
Issuance • The Securities will be issued in registered, global form The Securities will be registered under the Securities Act of 1933, as amended, and listed on NYSE
Contingent Value Securities Illustrative Impact – Wells Fargo Acquires WaMu
CVS has original notional value $4,000 mm ($2.35 / share) — Initially calculated as ~40% of mark on Option ARM portfolio at closing (mark on portfolio is 19% of 12/31/08E
balance of $51.8 billion)
Value of security contingent upon performance of reference pool (Option ARM portfolio) — Full value if portfolio performs as marked — Value adjusts on linear basis based on portfolio performance
Overview of Payment Pro Forma Impact 2009 2010 2011
As Expected: Moody's StressGain / (Loss) on Marked Portfolio $ 0.0 $ 0.0 $ 0.0Gain / (Loss) on CVS 0.0 0.0 0.0Value of CVS 4,000 4,000 4,000Wells Fargo Stock Price $ 32.57 $ 42.02 $ 45.28Number of Shares Issued 122.8 95.2 88.4Accretion / Dilution 34.3 % 36.6 % 36.3 %
Stronger Performance: Company StressGain / (Loss) on Marked Portfolio $ 276.1 $ 276.1 $ 276.1Gain / (Loss) on CVS (276.1) (276.1) (276.1)Value of CVS 4,276 4,552 4,828Wells Fargo Stock Price $ 32.57 $ 42.02 $ 45.28Number of Shares Issued 131.3 108.3 106.6Accretion / Dilution 34.1 % 36.1 % 35.7 %
Debt for Equity Exchange Exchanging Extant Debt and/or Preferred for Common Equity
Washington Mutual’s debt and preferred stock is trading at a significant discount to par
Similar to recent senior debt repurchases, a repurchase of discounted debt creates an after tax gain
A further extension to this strategy would be for WaMu to exchange equity for some of its existing subordinated debt and / or preferred stock
An equity exchange increases equity by — The price paid for the debt or preferred redeemed, plus — The aggregate discount less tax leakage
− Tax leakage only applies to debt and trust preferred – there is no tax leakage on Series K DRD Preferred, Series R Convertible Preferred, and REIT Preferred securities)
In addition, can re-balance capital structure by reducing hybrids outstanding, which could improve regulatory and rating agency sentiment
The most likely route for an exchange would be through a Section 3(a)(9) exemption — A direct solicitation by Washington Mutual to investors can avoid SEC filing but must conform to tender rules
and may be subject to the same disclosure requirements as a public common equity raise
Overview of Countrywide Mark to Market WM vs. CFC Asset Quality Comparison ($ in billions)
BofA announced a total mark to market on their Countrywide assets of $14.3bn, or 15.6% of the $91bn HTM loan portfolio — BofA officials said marks range across asset classes from single digits to mid-20s
Underlying assumptions on these marks is peak-to-trough nationwide HPD of 25-30%, with ~38-40% in FL and CA resulting in 17.3% cumulative loss on Countrywide Financial loans
Comparing loan portfolios suggests WM’s performance is dramatically better than CFC’s, although higher proportion of subprime loans increases loss content
Loans: Held for sale $11.8 $15.7 Held for investment 99.3 98.6
Total Loans 111.1 114.3
Allowance for loan losses (5.1) (3.4) Securities purchased under agreement to resell,
securities borrowed and fed funds sold 6.6 7.8 Investments in other financial instruments 18.8 20.9 MSR, at estimated fair value 18.4 17.2 Other assets 22.3 42.2
Total Assets $172.1 $199.0
Deposits $62.8 $63.3 Securities sold under agreement to repurchase 3.5 17.9 Notes payable 82.3 87.7 Other liabilities 13.1 16.9
Total liabilities 161.7 185.8 Shareholders' equity 10.4 13.2
Total Liabilities and Shareholders' Equity $172.1 $199.0
Purchase Price Countrywide common stock exchanged (in millions) 583 Exchange ratio 0.1822
Corporation's common stock exchanged (in millions) 106 Purchase price per share of the corporation's common stock1 $38.73
Total Purchase Price $4.1
Preliminary Allocation of the Purchase Price Countrywide stockholder's equity2 8.4 Pretax adjustments to reflect assets acquired and liabilities assumed at fair value3
Loans4 (8.1) Mortgage servicing rights (1.7) Deferred costs and currency adjustments on loans and debt 1.6 All other (4.6) Pretax total adjustments (12.8) Deferred income taxes 4.5
After tax total adjustments (8.3) Fair value of net assets acquired 0.1
Preliminary Goodwill Resulting from the Countrywide Merger $4.0
1 The value of the shares of common stock exchanged with Countrywide shareholders was based upon the average of the closing prices of the corporation's common stock for the period commencing two
trading days before, and ending two trading days after January 11, 2008, the date of the Countrywide merger agreement. 2 The value of the remaining Countrywide shareholder's equity after the cancellation of the Series B convertible preferred shares owned by the corporation prior to the merger. 3 Adjustments shown in the preliminary purchase price allocation are based on values within current estimated ranges. 4 Loan portfolio credit adjustment of $14.3 billion less the allowance for loan and lease losses of $5.1 billion less $1.1 billion of loss exposure for non-impaired loans that will flow through consolidated
Total Mark-To-Market $ 24.2(-) 12/31 Reserve (9.7)(-) Estimated 2H 2008 NCOs (5.7)Estimated Pre-Tax Mark at 12/31 $ 8.8
1 Bank of America indicated a range from single digits to mid twenties for the mark on the Prime First and Subprime. Mark for Prime Pay Option, HELOC and Fixed Rate Second are GS estimates. 2 GS estimates.
CONFIDENTIAL WAMUBKEXAM-GS-000086
WAMUNYCS\Aug 14\WM 8.14.08 Discussion_4.doc vyaank 13 Aug 2008 18:42 1/10
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1
Discussion Materials for
Goldman, Sachs & Co. August 14, 2008
CONFIDENTIAL WAMUBKEXAM-GS-000087
QUP Washington Mutual
1
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Discussion Materials
September 23, 2008
CONFIDENTIAL WAMUBKEXAM-GS-000255
2
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I. Situation Overview
CONFIDENTIAL WAMUBKEXAM-GS-000256
3
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Current Environment
Current market anxiety limits access to capital markets
Strategic investors “frozen” by market and regulatory developments
Sufficient liquidity to withstand short-term pressure on deposits — Customers repositioning FDIC insurance
— Uninsured consumer deposits (>$100k) approximately $10bn
— 20 million customers; not seeing erosion of customer base
− Currently have approximately $20 bn of near-term available liquidity and incremental collateral available to pledge
Credit costs in-line with expectations — September charge-off trends improving for all products
— Delinquencies showing signs of moderating
— Aggressive loss mitigation and loan modification programs in place
New CEO committed to reducing company risk profile and balance sheet size
Proposed stand-alone recapitalization plan provides alternative approach without policy intervention
CONFIDENTIAL WAMUBKEXAM-GS-000257
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Deposit Balance and Mix
Deposit balances are down 7% from year-end — Cost of deposits down 73bps; CD costs down 110bps — Retail deposits as a % of assets grows to 46.6% from 43.8% at 12/31/07
Ending Balance ($ in B)
76.3 86.5 79.6 78.3 69.4
49.4 43.1 41.1 46.1 47.9
17.8 18.617.7 18.6 16.5
143.6 148.3138.4 142.9
133.9
4Q'07 2Q'08 Jul 08 Aug '08 9/19
Consumer Noninterest-Bearing
CD
Interest-Bearing Transaction
Retail Cost of Deposits 2.82% 2.23% 2.00% 2.09
CD Cost of Deposit 4.56 3.94 3.37 3.46
CD as % of Total Deposits 34.4 29.1 29.7 32.3 35.8
Retail Dep as % of Total Assets 43.8 47.9 45.0 46.6
CONFIDENTIAL WAMUBKEXAM-GS-000258
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Large Deposit Accounts
Current deposit base more stable than before IndyMac — Mix of accounts improves from July 11th – shifting to lower balance mix. Overall, 98% of accounts are under
$500K — Accounts over $500K experienced almost 2x the decrease of accounts $100 -500K (75% vs. 45%)
— Roughly two-thirds of losses over last several days from uninsured deposits
Balance > $100K ($250K for IRA) (Single-Account Methodology)
$16.3$12.8 $12.5 $11.8
$8.9
$7.7
$4.5 $4.2 $3.4
$2.0
$24.0
$17.4 $16.6$15.3
$10.9
07/11/08 08/01/08 08/29/08 09/12/08 09/19/08
$500K +
$100K - $500K
75% Decrease since 07/11
45% Decrease since 07/11
CONFIDENTIAL WAMUBKEXAM-GS-000259
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High Balance Households Bringing Deposits Back
In July only 1% of all large balance HH’s ended their WaMu relationship
14% withdrew more than $100K, but kept their relationship — As of 9/11 41% of these customers brought back $10K+ (24% brought $100K+)
High Balance Households (>$100k) Total HHLDs % of Total
HHLDs ending WaMu relationship 5,594 1.7%
Withdrawing $100k+ but retaining relationship 44,760 13.7
All Other 275,189 84.5
TOTAL 325,543 100.0%
Actions between 7/25 and 9/11 Total
HHLDs % of Total
— Brought Back $100k+ 8.2k
24%
— Brought Back $10k-$100k 5.8
17
Brought Back $10k+ 14.0 41
Other 20.2 59
TOTAL 34.2K 100%
CONFIDENTIAL WAMUBKEXAM-GS-000260
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Deposit Trends – Summer 2008 Consumer IBD + Small Business Daily Balance Net Change
WaMu demonstrated the ability to raise deposits post-IndyMac
These statistics are not adjusted for the effects of loan modification programs that result in Troubled Debt Restructuring (TDR) classifications of loans as non-performing. By skipping some loans forward to that later-stage, non-performing status, such activity can reduce the amounts recorded as early-stage delinquencies.
CONFIDENTIAL WAMUBKEXAM-GS-000262
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II. Selected Alternatives
CONFIDENTIAL WAMUBKEXAM-GS-000263
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Overview of Selected Alternatives
Internal Capital /
Liquidity Generation
Downstream $4bn cash from holding company to bank Conversion of REIT Preferred to Holding Company Preferred, frees up pledge-able collateral Restructuring of bank and holdco debt with lower notional and / or preferred instruments Sale of non-performing loans to reduce risk and enhance liquidity Additional liquidity sourced through collateral initiatives
Strategic Branch
Sale / Partner
Same actions as plus — Sale of East coast (NY / FL) deposit franchise with selected assets — $500mm to $1bn investment sourced from acquirer with additional equity possible from
other investors — Potential to source liquidity from acquiror to replace lost deposits
Government
Lending Facility / Ownership
Same actions as plus — Treasury provides $20bn secured loan facility — Treasury receives [79.9%] ownership
Use of TARF to Sell High Risk
Assets
Washington Mutual sells significant portion of high risk assets to new treasury facility Recent indications suggest pricing will be based on intrinsic value of assets Resulting pro forma company has adequate capital, significant liquidity and would be very
attractive for potential acquirors
CONFIDENTIAL WAMUBKEXAM-GS-000264
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1) Internal Capital / Liquidity Generation Overview
Execute public tender to exchange existing debt / preferred for more subordinated or reduced notional security
Downstream $4bn cash from WMI to WMB
Exchange WMB REIT Preferred for preferred stock in WMI based on the occurrence of an exchange event
Sell $[15]bn in NPLs and other residential mortgages loans at price of [40]%
CONFIDENTIAL WAMUBKEXAM-GS-000265
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1) Internal Capital / Liquidity Generation Additional Detail
Description Bank Liquidity Impact Bank Capital Impact Downstream
Cash Downstream approximately
$4bn of cash from WMI to WMB
-- Common Equity
+ $4bn
Conversion of REIT Preferred
REIT Preferred converts to Holding Company preferred with occurrence of exchange event
Collateral $6bn --
Debt / Preferred Restructuring
Public tender to exchange existing debt/preferred into more subordinated or reduced notional securities
Reduced debt maturities
$1.5bn in 2009 maturities
Preferred Stock + $10bn
Asset Sale
Given capital generation from previous strategies, sell high risk loans to reduce overall portfolio exposure
Cash $5-10bn Depending on price Likely negative
Total Restructured Company has significantly more capital, an increased liquidity profile, a more focused business model, and a de-risked portfolio
$13-$18bn Up to $14 bn
CONFIDENTIAL WAMUBKEXAM-GS-000266
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Liability Restructuring Debt / Preferred for Preferred Equity ($ in millions)
Public exchange offer to holders of debt and preferred — 2 weeks to document — 4 weeks (20 business days) to execute
Holders offered an exchange for a reduced notional value of preferred stock
Holders also granted common stock representing a significant portion of the company
— Shares allocated proportional to discount surrendered by holder
Offer contingent on 80% success rate
Assuming Estimated AllocationCommon
Security Restructure Estimated Notional Discount Tax Net Equity SharesCurrent Security Received Price Allocation Restructured Captured Leakage Increase Issued
Indications of Interest / Initial Management Meetings (March 10-14)
— JP Morgan, Wells Fargo
Second Round Management Meetings / Final Bids (March 17 – April 1) — JP Morgan – Offered $5.00 / share with upside of $3.00 / share via a contingent value security
if the low end of losses in home equity portfolio (8.5% cumulative losses on $60.6bn home equity portfolio) proved to be correct
− Based on current assumptions of losses in home equity portfolio, aforementioned contingent value security would be worth $0
— Wells Fargo declined second round meetings due to concerns over mortgage portfolio and geographic overlap in higher-risk states (i.e. California)
Mark on portfolio at closing will be the primary driver for sizing the capital requirement of the acquiring institutions
Likely to be calculated based on a discounted cash flow methodology (expected prepayments, interest, losses, etc) as level 3 assets
BAC / CFC provides one recent data point on “accountant-approved” methodology
Form of Consideration
Contingent value security may be a form of consideration for potential acquirors Likely to be linked to performance of some subset of higher risk residential real
estate portfolio (or all of it) — JPMorgan linked to low-end of loss range on home equity portfolio to obtain
full value of CVS
Capturing Discount in Debt / Preferred
WaMu’s debt and preferred outstandings are currently trading at a significant discount to par — Aggregate discount of approximately $10.0 billion on $24.0 billion liability /
preferred base Capturing this discount in some fashion prior to executing a strategic transaction
would potentially improve the ability to pay of a potential partner due to decreased goodwill creation / capital needed
Transaction contingent on exchange / tender of debt / preferred may also be structured
Illustrative Impact at Close Moody's Stress Case Company Stress Case
Credit Impact Discount Rate Illustrative Mark Credit Impact Discount Rate Illustrative Markon Mark Impact on Mark to Market on Mark Impact on Mark to Market
Financial Assumptions — Financial data as of June 30, 2008. Market data as of August 8, 2008 — Acquirer IBES standalone financial assumptions — $5.00 purchase price
Transaction Assumptions — 100% stock financed — Company High Stress Case: $14.4 billion total pre-tax mark in excess of allowance at closing — Moody’s Stress Case: $18.5 billion total pre-tax mark at closing in excess of allowance at closing — Pro Forma Capital ratios
− Wells Fargo, USB, BBVA, SMBC maintain current Tier 1 RBC ratio − JPMorgan, Barclays and TD allowed 60 bps of Tier 1 capital flexibility − Santander allowed ~15 bps of Tier 1 capital flexibility − Acquirer issues shares at 10% discount to recapitalize entity
— Identifiable intangibles created: 1.5% of core deposits (CDI), 3.0% of managed credit card receivables (PCCR) — Restructuring charge of 1.5x run-rate synergies, over three years
Synergies detailed below (phased in 50% in 2009, 75% in 2010 and 100% thereafter)
A bank holding company (“Acquiror”) is seeking to acquire another bank holding company (“Target”) which holds a portfolio of higher risk assets (“Assets”) on its balance sheet
In addition to cash and other consideration the Acquiror can deliver to Target shareholders Contingent Value Securities (“CVS”) which track the performance of the Assets and convert into common stock of the Acquiror based on Asset performance
CVS return will be based on asset performance post purchase accounting mark
Initial value of the CVS would be based on the size of the Asset portfolio, and the purchase accounting mark on the Assets
Dividends would be non-cumulative and paid based on an arms length fixed annual rate
Conversion into Acquiror common stock would be mandatory and occur upon the earlier of [5 yrs] and the date on which [80%] of the assets have paid off — Investors receive a variable number of shares
to return a fixed value within a range based on (i) performance of the asset portfolio and (ii) Acquiror stock price on the conversion date
— Alternately, upside can be capped or shared between Acquiror and Target shareholders
Contingent Value Securities Regulatory, Rating Agency & Accounting Considerations
Regulatory & Rating Agency
The securities will be non-cumulative perpetual preferred stock with a mandatory conversion feature, and will qualify as Tier 1 and unrestricted core capital at the Federal Reserve
Rating Agencies will likely treat the security as a mandatory convertible preferred, which would achieve Basket E (100%) at Moody’s and 100% equity credit at S&P (up to 50% of ACE)
Accounting The value of the CVS will vary based on the value of the underlying assets, and will therefore likely be viewed as a
derivative — FAS 133 requires that the derivative should be marked to market on an ongoing basis. Consistent with the
guidance on contingent consideration in FAS141R, the change in fair value would be recorded in current earnings or OCI
— Changes in value in the CVS may be offset by electing fair value accounting on the underlying assets
− Size and timing of mark-to-market adjustments on the CVS may differ from adjustments on the underlying assets due to different assumptions underlying the valuation of each1
Since there is a requirement to deliver a variable number of shares within a range, the CVS will likely receive “if-converted” accounting treatment
To avoid EITF 00-19 issues, the CVS will require a share cap to limit the amount of common shares that could potentially be issued
1 Including volatility of the Acquiror’s share price, shifts in interest rates and shifts in credit spreads
Assets A portfolio of higher-risk mortgage related assets with starting aggregate face or principal amount of $● (the “Starting Unpaid Principal Balance”)
Securities Offered Contingent Value Securities (“The Securities”)
Liquidation Preference Initially $● in the aggregate, or $● per share,
Conversion Date The earlier of (i) the date which is [5] yrs from the issue date, and (ii) the Asset Disposition Date
“Asset Disposition Date” means the last day of the first calendar quarter as of which the Unpaid Principal Balance is [20]% or less of the Starting Unpaid Principal Balance
“Unpaid Principal Balance” means, on any date, the aggregate principal amount of the loans that are part of the Assets on such date
Conversion On the Conversion Date, the Securities will convert into a number of shares of Acquiror common stock equal to the Conversion Valuedivided by the volume weighted average price of Acquiror common stock over the ten day period preceding the Conversion Date,provided that the Acquiror shall in no event be obligated to deliver more shares than the Maximum Share Cap
The “Conversion Value” will equal the sum of (a) the Liquidation Preference minus (b) Aggregate Asset Gains and Losses minus (c) Remaining Expected Losses
“Aggregate Asset Gains and Losses” means the aggregate sum of realized losses and realized gains minus the aggregate sum of expected losses as reflected on the Acquiror’s consolidated balance sheet at inception of the transaction as calculated on theConversion Date by an independent investment banking firm of international standing (the “Calculation Agent”)
“Remaining Expected Losses” means, with respect to Assets still outstanding on the Conversion Date, the aggregate sum ofexpected future losses as calculated on the Conversion Date by the Calculation Agent
“Maximum Share Cap” means [2 times] the Liquidation Preference divided by the volume weighted average price of Acquiror common stock over the ten day period preceding the date of issuance
Dividends Non-Cumulative Dividends will be payable on the Securities as and if declared by the Board of Directors at a rate equal to [8]% per annum applied to the Liquidation Preference of the Securities quarterly on ●,●,● and ● of each year, commencing on ●, 2008 (each, a “Dividend Payment Date”). The period from, and including, a Dividend Payment Date to, but excluding, the next succeedingDividend Payment Date is referred to herein as a “Dividend Period”.
Dividends on the Securities are not cumulative. Accordingly, if for any reason the Acquiror does not declare a dividend on theSecurities before the Dividend Payment Date for a Dividend Period, that dividend will not accumulate and holders of the Securities will have no right to receive, and the Acquiror will have no obligation to pay, a dividend for that period, whether or not dividends onthe Securities are paid in full or in part in the future.
If full dividends on the Securities are not paid for a particular Dividend Period, the Acquiror will not declare or pay dividends on orredeem or purchase any common stock or other junior securities during the next succeeding Dividend Period.
Ranking The Securities will rank junior to all debt of the Acquiror, senior to common equity, and pari passu with all other preferred shares of the Acquiror
Covenants In the charter document setting forth the terms of the Securities (the “Issuance Document”), the Acquiror will covenant as follows:
the Calculation Agent will calculate, for relevant periods and as of relevant dates, the Aggregate Gains and Losses andRemaining Expected Losses (and related definitions used in computing defined amounts) in accordance with the definitions ofthose terms set forth in the Issuance Document; and
at all relevant times, the Acquiror will have entered into and have in full force and effect a “Servicing Agreement” with an “Eligible Servicer”. “Eligible Servicer” means ●; each such Servicing Agreement shall have at least the following terms: ●
adopt a policy to manage the Assets with the objective of maximizing the gains on the Assets, and to adopt that standard as thecore servicing standard in the Servicing Agreement
Servicing Commencing upon issuance of the Securities and continuing through the Redemption Date, there shall at all times be a “Servicer” who shall be an Eligible Servicer. The Servicer shall be responsible for collecting on and otherwise servicing the Assets including assets that are ● or more days delinquent or are characterized as non-performing assets. The initial Servicer shall be jointly agreed upon and appointed by the Acquiror and the Target.
Issuance • The Securities will be issued in registered, global form The Securities will be registered under the Securities Act of 1933, as amended, and listed on NYSE
Contingent Value Securities Illustrative Impact – Wells Fargo Acquires WaMu
CVS has original notional value $4,000 mm ($2.35 / share) — Initially calculated as ~40% of mark on Option ARM portfolio at closing (mark on portfolio is 19% of 12/31/08E
balance of $51.8 billion)
Value of security contingent upon performance of reference pool (Option ARM portfolio) — Full value if portfolio performs as marked — Value adjusts on linear basis based on portfolio performance
Overview of Payment Pro Forma Impact 2009 2010 2011
As Expected: Moody's StressGain / (Loss) on Marked Portfolio $ 0.0 $ 0.0 $ 0.0Gain / (Loss) on CVS 0.0 0.0 0.0Value of CVS 4,000 4,000 4,000Wells Fargo Stock Price $ 32.57 $ 42.02 $ 45.28Number of Shares Issued 122.8 95.2 88.4Accretion / Dilution 34.3 % 36.6 % 36.3 %
Stronger Performance: Company StressGain / (Loss) on Marked Portfolio $ 276.1 $ 276.1 $ 276.1Gain / (Loss) on CVS (276.1) (276.1) (276.1)Value of CVS 4,276 4,552 4,828Wells Fargo Stock Price $ 32.57 $ 42.02 $ 45.28Number of Shares Issued 131.3 108.3 106.6Accretion / Dilution 34.1 % 36.1 % 35.7 %
Debt for Equity Exchange Exchanging Extant Debt and/or Preferred for Common Equity
Washington Mutual’s debt and preferred stock is trading at a significant discount to par
Similar to recent senior debt repurchases, a repurchase of discounted debt creates an after tax gain
A further extension to this strategy would be for WaMu to exchange equity for some of its existing subordinated debt and / or preferred stock
An equity exchange increases equity by — The price paid for the debt or preferred redeemed, plus — The aggregate discount less tax leakage
− Tax leakage only applies to debt and trust preferred – there is no tax leakage on Series K DRD Preferred, Series R Convertible Preferred, and REIT Preferred securities)
In addition, can re-balance capital structure by reducing hybrids outstanding, which could improve regulatory and rating agency sentiment
The most likely route for an exchange would be through a Section 3(a)(9) exemption — A direct solicitation by Washington Mutual to investors can avoid SEC filing but must conform to tender rules
and may be subject to the same disclosure requirements as a public common equity raise
Overview of Countrywide Mark to Market WM vs. CFC Asset Quality Comparison ($ in billions)
BofA announced a total mark to market on their Countrywide assets of $14.3bn, or 15.6% of the $91bn HTM loan portfolio — BofA officials said marks range across asset classes from single digits to mid-20s
Underlying assumptions on these marks is peak-to-trough nationwide HPD of 25-30%, with ~38-40% in FL and CA resulting in 17.3% cumulative loss on Countrywide Financial loans
Comparing loan portfolios suggests WM’s performance is dramatically better than CFC’s, although higher proportion of subprime loans increases loss content
Loans: Held for sale $11.8 $15.7 Held for investment 99.3 98.6
Total Loans 111.1 114.3
Allowance for loan losses (5.1) (3.4) Securities purchased under agreement to resell,
securities borrowed and fed funds sold 6.6 7.8 Investments in other financial instruments 18.8 20.9 MSR, at estimated fair value 18.4 17.2 Other assets 22.3 42.2
Total Assets $172.1 $199.0
Deposits $62.8 $63.3 Securities sold under agreement to repurchase 3.5 17.9 Notes payable 82.3 87.7 Other liabilities 13.1 16.9
Total liabilities 161.7 185.8 Shareholders' equity 10.4 13.2
Total Liabilities and Shareholders' Equity $172.1 $199.0
Purchase Price Countrywide common stock exchanged (in millions) 583 Exchange ratio 0.1822
Corporation's common stock exchanged (in millions) 106 Purchase price per share of the corporation's common stock1 $38.73
Total Purchase Price $4.1
Preliminary Allocation of the Purchase Price Countrywide stockholder's equity2 8.4 Pretax adjustments to reflect assets acquired and liabilities assumed at fair value3
Loans4 (8.1) Mortgage servicing rights (1.7) Deferred costs and currency adjustments on loans and debt 1.6 All other (4.6) Pretax total adjustments (12.8) Deferred income taxes 4.5
After tax total adjustments (8.3) Fair value of net assets acquired 0.1
Preliminary Goodwill Resulting from the Countrywide Merger $4.0
1 The value of the shares of common stock exchanged with Countrywide shareholders was based upon the average of the closing prices of the corporation's common stock for the period commencing two
trading days before, and ending two trading days after January 11, 2008, the date of the Countrywide merger agreement. 2 The value of the remaining Countrywide shareholder's equity after the cancellation of the Series B convertible preferred shares owned by the corporation prior to the merger. 3 Adjustments shown in the preliminary purchase price allocation are based on values within current estimated ranges. 4 Loan portfolio credit adjustment of $14.3 billion less the allowance for loan and lease losses of $5.1 billion less $1.1 billion of loss exposure for non-impaired loans that will flow through consolidated
Total Mark-To-Market $ 24.2(-) 12/31 Reserve (9.7)(-) Estimated 2H 2008 NCOs (5.7)Estimated Pre-Tax Mark at 12/31 $ 8.8
1 Bank of America indicated a range from single digits to mid twenties for the mark on the Prime First and Subprime. Mark for Prime Pay Option, HELOC and Fixed Rate Second are GS estimates. 2 GS estimates.
CONFIDENTIAL WAMUBKEXAM-GS-000086
WAMUNYCS\Aug 14\WM 8.14.08 Discussion_4.doc vyaank 13 Aug 2008 18:42 1/10
DRAFT
1
Discussion Materials for
Goldman, Sachs & Co. August 14, 2008
CONFIDENTIAL WAMUBKEXAM-GS-000087
QUP Washington Mutual
00
Management PresentationSeptember 2008
CONFIDENTIAL WAMUBKEXAM-GS-000280
1
Agenda
• Situation Overview
• Company Overview
• Business Line Overview
• Asset Quality Update
• Financial Outlook
CONFIDENTIAL WAMUBKEXAM-GS-000281
2
Company Highlights
• Strong retail and small business banking franchise with leading share in strategic, high-growth markets
• Recognized and prominent national brand
• Diverse set of core consumer products including deposits, mortgages, credit cards and investment products
• Uniquely positioned and growing multi-family platform
• Core business lines generate significant stable earnings as credit cycle normalizes
• Diversified funding anchored by strong branch-based deposit franchise
• Strong management team with deep experience
• Attractive valuation
CONFIDENTIAL WAMUBKEXAM-GS-000282
3
Company Overview
CONFIDENTIAL WAMUBKEXAM-GS-000283
4
A Leader in Consumer and Small Business Banking
Leading Retail Franchise
• #6 depository, with over 2,200 retail banking stores • Growth footprint: population growth of 11% vs. national average of 6%• #6 largest bank card issuer• #1 multi-family lender
Washington#2 in deposits#2 in stores
Oregon#3 in deposits
Nevada1
#3 in deposits
California#3 in deposits#3 in stores
Texas#6 in deposits#4 in stores
New York#5 in deposits#7 in stores
Florida#5 in deposits#5 in stores
Source: SNL Financial as of 6/30/071 Excludes all Henderson home office deposits except online, Enterprise Customer Care (ECC) and branch deposits.
Stable Core EarningsPre-tax Income from Continuing Operations($ in billions)
Core pre-tax earnings excludes provision, foreclosed asset expense, resizing expense, net gain/loss on trading and available for sale securities, Q4’07 $415M gain on sale of WM Group of Funds, and Q4’07 $1.78B home loans goodwill write-down
3
CONFIDENTIAL WAMUBKEXAM-GS-000285
6Note: As of 6/30/081 Includes minority interests (REIT Preferreds).
Stable Funding Base
• Majority of funding through core retail deposits
• Enhance cross-sell initiatives through retail channel
• Continue to take aggressive actions to right size Home Loans while maintaining flexibility to capitalize on future opportunities
• Continue to move towards best-in-class productivity
• Aggressively manage credit through difficult environment
CONFIDENTIAL WAMUBKEXAM-GS-000287
8
Business Line Overview
CONFIDENTIAL WAMUBKEXAM-GS-000288
9
Unique and Valuable Retail Banking Franchise
Retail Banking Driven Strategy
Innovative Products
Industry-Leading Service
Leading Retail Banking Brand
Powerful Distribution
CONFIDENTIAL WAMUBKEXAM-GS-000289
10
Summary of Business LinesHome Loans
Commercial Banking
Card Services
Retail Banking
• David Schneider• Al Brooks• Tony Vuoto• Steve Rotella -Acting
President
• 7,338• 1,342• 2,940• 27,857Employees
• $2,0763 M• $264 M• $1,259 M• $4,814 MExpenses1
• $1,624 M• $752 M• $2,5892 M• $8,311 MRevenue1
• Nationwide single-family residential real estate lending and servicing
• Multi-family and commercial real estate lending business in selected markets
• Nationwide credit card lending business
• 2,239 retail branches in 15 states
Description:
1 Represents total revenues and expenses from Q3 ‘07 to Q2 ‘082 Card services revenue is reported on a GAAP basis.3 Excludes 4Q ’07 $1.78 bn goodwill writedown.
CONFIDENTIAL WAMUBKEXAM-GS-000290
11
Retail Focused Strategy
Retail Banking Card Services Home Loans Commercial
Optimize new store expansion and existing store performance
Expand small business
Drive deposit growth
Pursue balanced growth strategy
Leverage retail bank distribution
Grow small business receivables
Migrate to retail production channels
Leverage retail bank distribution
Drive operating efficiency
Expand leading multi-family business
Leverage leading efficiency position
Expand relationships through deposit-gathering products and services
– $796M in Q2 operating earnings1; Q3 estimate = $800M
– Brand continues to attract customers; estimated Q3 gross free checking production equal to Q2 at ~760K
– Depositor fee income grows 10% from Q3 2007
– Disciplined store closures improve efficiency with minimal impact on deposit balances
• Deposit portfolio forecasted to increase from December 2007 levels– Cost of deposits down 73bps; CD mix consistent with year end level
– Broad response to IndyMac: Marketing, Incentives, Customer Communication, Pricing
– Accounts below $100K have grown 2% since IndyMac
– As expected, deposit decreases concentrated in higher balance accounts and in Southern California (IndyMac markets)
– CD promotion results more cost effective than historical campaigns
– Large deposit customers are keeping relationships and bringing back deposits 1 Retail Banking excluding impact of home equity and small business provision, foreclosed asset expense and taxes
CONFIDENTIAL WAMUBKEXAM-GS-000295
16
Retail Model Drives Core Earnings
11% CAGROperating Earnings1
($ millions)
• Operating earnings ~$800M for past 2 quarters
• Efficiency ratio (excl. FDIC premiums) drops from 64% in Q2-05 to 57% in Q3-08
$560
$751$862 $796 $797
Q2'05 Q2'06 Q2'07 Q2'08 Q3'08F
1 Retail Banking excluding impact of home equity and small business provision, foreclosed asset expense and taxes
Depositor & Other Retail Banking FeesSecurities Fees & Commissions($ millions)
$587
$697
$790 $831
10% CAGR
$875
+8.5% vsQ3 ‘07
CONFIDENTIAL WAMUBKEXAM-GS-000298
19
76.3 86.5 79.6 78.3
49.4 43.1 41.1 46.1
17.8 18.617.7 18.6
143.6 148.3138.4 142.9
4Q07 2Q08 Jul 08 Aug 08
Deposit Balance and Mix • Deposit balances increase from December 2007
− Cost of deposits down 73bp; CD costs down 110bp and CD mix flat to December− Retail deposits as a % of assets grows to 46.6% from 43.8% at 12/31/07− Record deposit growth in August; adjusting for $2.7B of internal transfers to CD’s, non CD deposits
up 1.7%− The Majority of July decline due to uninsured deposit withdrawals
Ending Balance ($ in B)
Retail Cost of Deposits 2.82% 2.23% 2.00% 2.09%CD Cost of Deposit 4.56% 3.94% 3.37% 3.46%
CD as % of Total Deposits 34.4% 29.1% 29.7% 32.3%Retail Dep as % of Total Assets 43.8% 47.9% 45.0% 46.6%
ConsumerNoninterest-Bearing
CD
Interest-BearingTransaction
143.6 148.3138.4
142.9
Q4’07 Q2’08 Jul 08 Aug 08
CONFIDENTIAL WAMUBKEXAM-GS-000299
20
Large Deposit Accounts• Current deposit base more stable than before IndyMac
– Balances under $100K have grown 2% to $124.8B since the IndyMac announcement– Mix of accounts improves from July 11th – shifting to lower balance mix. Overall, 98% of
accounts are under $500K (233,350 accounts)– Accounts over $500K experienced 2x the decrease of accounts $100 -500K (46% vs 23%)
46% Decrease since 7/11
23% Decrease since 7/11
Balances > $100K ($250K for IRA) (Single-Account Methodology)
$16.3$12.8 $12.5
$7.7
$4.5 $4.1
$24.0
$17.4 $16.6
-
$5 B
$10 B
$15 B
$20 B
$25 B
$30 B
7/11/08 8/1/08 9/5/08
$100K - $500K $500K + Total
$7.7
$4.5 $4.1
$12.8 $12.5
$24.0
$17.4 $16.7
Balance > $100K ($250K for IRA) (Single-Account Methodology)
$16.3
CONFIDENTIAL WAMUBKEXAM-GS-000300
21
• In July only 1% of all large balance HH’s ended their WaMu relationship
• 10% withdrew more than $100K, but kept their relationship− In August 37% of these customers brought back $10K+ (22% brought $100K+)
37%34.2k• Brought Back $10k+
63%21.6k• Other
100%34.2KTOTAL
22%7.6k- Brought Back $100k+
15%5.0k- Brought Back $10k-
$100k
% of Total
Total HHLDs
Actions between 7/25 and 8/22
88.5%288,234• All Other
1.0%3,097• HHLDs ending WaMu
relationship
100%325,543TOTAL
10.5%34,212• Withdrawing $100k+ but
retaining relationship
% of Total
Total HHLDs
High Balance Households (>$100k)
High balance households bringing deposits back
CONFIDENTIAL WAMUBKEXAM-GS-000301
22
• Increased store focus and transparency to assist in deposit retention– Sales incentives increased and simplified to drive deposits– “Win-back” calling programs for large balance customers
• Implemented customer communication and education programs– FDIC basics to all store sales staff – explaining coverage options– New program allowing customers to receive double FDIC insurance
• Marketing increased for deposit products– Added $13MM to our Q3 marketing budget including radio, print, in-store and
online ads
• Short CD pricing promotions to drive growth– Two 5 day promotion periods for optimal CD balance growth– Scripting and focus to drive incremental household and checking growth
Comprehensive action plan to maintain & grow deposits
CONFIDENTIAL WAMUBKEXAM-GS-000302
23
Growing Small Business RapidlyBut Significant Opportunity Remains
Performance (variance from net income after tax target)
Site
attr
activ
enes
s
RE-FOCUSAttractive site, poor performance
LEVERAGEAttractive site, high performance
RECONSIDER Unattractive site, poor performance
OPTIMIZE Less attractive site, high performance
Performance Improvement PlanDeNovo Store Decision Matrix
CONFIDENTIAL WAMUBKEXAM-GS-000304
25
Measured Growth of Store Portfolio
75-10077
210
250260
144
0
100
200
300
2003 2004 2005 2006 2007 2008F0%
5%
10%
15%
20%New Stores
New Stores as a %of Total Stores
90%84%76%66%52%48%
% of New Stores Opened in EstablishedMarket
~404585118110Store Closures
1 WaMu also consolidated 79 grocery store locations into larger, existing retail banking stores in 2004.
CONFIDENTIAL WAMUBKEXAM-GS-000305
26
Industry Leading Service
• Retail Bank Customer Satisfaction
#1 West
#1 California1
#1 Midwest
#3 Mid-Atlantic
#3 Southwest
#4 Southeast
1 For large banks.
65
75
85
2004 2005 2006 2007
W achovia W aM u JPM organ Bank of America
• Only Retail Bankon list
• #14
ACSI Satisfaction Ratings
CONFIDENTIAL WAMUBKEXAM-GS-000306
27
Key Takeaways and Opportunities
• Strong performance with upside opportunity
• Leading West Coast retail franchise
• Top-tier player in checking and household growth
• Sizable opportunities to deepen relationships with deposits, cards and home loans
• Small business expansion still in early stages
• Optimizing store and internet distribution networks to capture full potential
CONFIDENTIAL WAMUBKEXAM-GS-000307
28
Card Services
CONFIDENTIAL WAMUBKEXAM-GS-000308
29
Card Services Overview
• Proven track record of acquiring and managing receivables in the mass middle market
• Leveraging multiple distribution channels with emphasis on retail stores
• Strong receivables growth fueled by access to WaMu brand and customers with risk premium
• Continue to leverage information based marketing and strong risk management capabilities
• Managing balance between growth and risk cautiously in weakening economic environment
• Deep and experienced management team
CONFIDENTIAL WAMUBKEXAM-GS-000309
30
Card Services Team
Tony VuotoPresident
Years of Experience: 25Years at WaMu: 6
Susan GleasonChief Operations Officer
Years of Experience: 31Years at WaMu: 6
Michele Iversen Chief Financial Officer
Years of Experience: 20Years at WaMu: 6
David TomlinsonChief Marketing
OfficerYears of Experience: 20
Years at WaMu: 6
Chaomei Chen Chief Risk Officer
Years of Experience: 20Years at WaMu: 6
CONFIDENTIAL WAMUBKEXAM-GS-000310
31
June 30 2007 June 30 2008
Card Services – Segment Contribution($ in millions)
Note: % of Total Revenue from Q3 ’07 to Q2 ’08 excludes Corporate Support / Treasury / Other. Card Services revenue growth is net of securitization adjustments and is reported on a GAAP basis
% Q3 ’07 to Q4 ‘08 WM Total Revenues
6% YOY growth
Card Services Managed Receivables
Total Revenues: $13.3bn
Commercial Group
6%
Home Loans12%
Card Services
19%
Retail Banking
63%
$24,987
$26,430
CONFIDENTIAL WAMUBKEXAM-GS-000311
32
Balanced Growth Strategy
• Continued focus on target market with new products and “Simpler Banking”
• Current initiatives underway to expand beyond core middle market
Goal: Expand Accessible Market from 12 mm to 20 mm
Risk
Ret
urn
HighLow
Hig
hLo
w
Core Middle Market
Universe
UnderservedExpansion
Prime Expansion
MiddleExpansion
CONFIDENTIAL WAMUBKEXAM-GS-000312
33
An Industry Leader
• 6th largest Visa/MasterCard bank card issuer
• $26.4 billion in managed receivables
• Over 12.7 million customer accounts
• Large, information-driven direct marketer (500 million contacts annually)
Note: All data as of 6/30/08 except for Card Issuer Ranking which is as of 06/30/07
National programs Partnership Programs Retail programs
Note: Estimate based on Card Services prospect database
FICO Bands of Targeted Customers - 2007
CONFIDENTIAL WAMUBKEXAM-GS-000317
38
Risk Control Initiatives
• Actions taken to minimize the impact of the mortgage and economic downturn– Map negative HPA regions into marketing program suppressions
– Suppression of WaMu subprime mortgages in retail channels
– Suppression of 2+ mortgage positions in all new account channels, in credit line increase programs, and in relationship marketing programs
– Tighten the prescreen score cut offs in all acquisition programs
– Suspended line increases in Q4’07
– Tighten underwriting score cut-offs
– Tighten high credit line assignment criteria
– Close excessive inactive accounts. Stop authorization expansions
– Remove 660 FICO cap on “Risk-Based Re-pricing” eligible populations
CONFIDENTIAL WAMUBKEXAM-GS-000318
39
Key Takeaways and Opportunities
• Unique expertise in mass middle market that delivers high risk-adjusted returns
• WaMu brand and customer base fuels receivables growth with upside opportunity
• Targeting and acquisitions continue to migrate to higher FICO mix
• Proactively balancing growth and risk in a softening environment
CONFIDENTIAL WAMUBKEXAM-GS-000319
40
Commercial Group
CONFIDENTIAL WAMUBKEXAM-GS-000320
41
Commercial Group Overview
• Leading multi-family lending business
• Operates in select markets with stable demand and supply constraints
• Targets small balance customers with competitive pricing and best-in-class efficiency ($1.3 million average loan balance)
• Rigorous focus on pristine credit quality
• Management team with deep industry experience
CONFIDENTIAL WAMUBKEXAM-GS-000321
42
Home Loans Team
John WoodsChief Financial Officer
Years of Experience: 22Years at WaMu: 2
Arlene HydeProduction
Years of Experience: 25Years at WaMu: 3
John BerensServicing
Years of Experience: 25Years at WaMu: 4
Don WhiteRisk ManagementYears of Experience: 16
Years at WaMu: 1
David BeckCapital Markets
Years of Experience: 25Years at WaMu: 6
Beth GanemHuman ResourcesYears of Experience: 19
Years at WaMu: 11
Mike ZarroChief Admin. Officer
Years of Experience: 27Years at WaMu: 7
Tom MorganChief Technology Officer
Years of Experience: 30Years at WaMu: 5
David SchneiderPresident
Years of Experience: 21Years at WaMu: 3
CONFIDENTIAL WAMUBKEXAM-GS-000322
43
Target Market• Select markets with
stable demand and natural supply constraints
• Moderately priced, less volatile buildings
• Renters by necessity
Focused Operating StrategyUnique Value Proposition
Target Customer• Small balances• “In the box”
transactions• Value shoppers• Moderate leverage at a
fair price
Market Differentiators• Local presence • Competitive pricing• Fast & simple process• Targeted product
solutions• Certainty of execution• Direct borrower
relationships
CONFIDENTIAL WAMUBKEXAM-GS-000323
44
Commercial Group – Segment Contribution($ in millions)
$35,218
$42,301
June 30 2007 June 30 2008
20% YOY growth
Total Revenues: $13.3bn
Commercial Group Loans Receivable% of Q3 ’07 to Q2 ‘08 WM Total Revenues
Commercial Group
6%
Home Loans12%
Card Services
19%
Retail Banking
63%
Note: % of Q3 ’07 to Q2 ‘08Total Revenue excludes Corporate Support / Treasury / Other. Card Services revenue is net of securitization adjustments
CONFIDENTIAL WAMUBKEXAM-GS-000324
45
Portfolio Composition
$16 $16 $18 $20 $22$26
$30 $32 $33$6
$10$12
$11 $9$7
$8$11
$12
2000 2001 2002 2003 2004 2005 2006 2007 Q2'08
M ulti-Family Lending Other Commercial
$22
$26
$30 $31 $31$33
$38
$43
Note: Portfolio breakdown as of 6/30/2008. Other Commercial consists of Other Real Estate, Retail Small Business and Commercial Loans.
Historical Breakdown ($ in billions)Portfolio Breakdown
M ulti-Family
Lending73%
Other Commercial
27%$45
CONFIDENTIAL WAMUBKEXAM-GS-000325
46Source: 2006 HMDA data
Existing markets
New market (2007)
Leading Share in Select Markets
Seattle #2
Portland #1
Sacramento #1San Francisco #1
Los Angeles #1
San Diego #1
Denver #2
Chicago #1
Boston #1
New York #1
Philadelphia #7
Washington, DC #6
Minneapolis #1Milwaukee #3
Phoenix
CONFIDENTIAL WAMUBKEXAM-GS-000326
47
Largest Multi-Family Portfolio in Banking
$3.0
$3.1
$3.9
$5.0
$7.6
$8.0
$10.3
$31.1
$2.5
$13.5
WaMu
NY Community Bancorp
Citigroup
Wachovia Corporation
Bank of America
Capital One
Sovereign Bank
LaSalle Bank
Astoria Federal Savings
Wells Fargo & Company
Source: FDIC and OTS, per SNL DataSource. Balances may differ slightly to filings reported on a GAAP basisNote: As of June 30, 2007; rankings for banks and thrifts only (most recent data available)1 Bank of America acquired LaSalle Bank on October 1, 2007.
1
Multi-Family Portfolio Holdings ($ in billions)
CONFIDENTIAL WAMUBKEXAM-GS-000327
48
Conservative Underwriting Philosophy
• Typically, maximum 75% LTV and minimum 1.15x debt service coverage (“DSC”), with 680 minimum FICO score
• Higher DSC for office (1.20 DSC)
• DSC requirements increase based on property age, quality and cash flow stability
• Collateral focused underwriting
• Proceeds based on property net operating income
• Recourse to an individual is common on the majority of our loans
• Do not originate large construction loans; average loan size is $1.3 million
• No condo conversions
• No conduit lending
• No corporate banking
• Exited tract and condo development financing business in 2004
• Do not focus on structured finance
• De minimis residential land lending
What We Don’t DoConservative Metrics
CONFIDENTIAL WAMUBKEXAM-GS-000328
49
Key Takeaways and Opportunities
• Leading small-balance multi-family business with competitive advantage in efficiency and service
• Strong growth opportunities primarily in existing and selected new markets
• Maintaining focus on conservative credit philosophy with good results
• Significant opportunity to expand relationships through deposit gathering products and services
CONFIDENTIAL WAMUBKEXAM-GS-000329
50
Home Loans
CONFIDENTIAL WAMUBKEXAM-GS-000330
51
Home Loans Overview
• Significantly restructured and refocused the business model– Exited volatile businesses – Conduit, Broker Dealer, and Wholesale
– Exited high-cost Home Loan Centers
– Tightened credit parameters and implemented additional policies in high-risk markets
– Reduced expenses eliminating 6,700 positions since the end of 2006 and consolidated 24 fulfillment centers into 3
• Proactively responding to structural changes in industry volumes, mix, and secondary markets
• Positioned for production success– Significant opportunity to grow retail store production and cross sell WaMu bank products
– Strong call center capabilities
– Completed transition to state of the art production systems in retail
– Simplified product set and focused on agency-eligible product with minimal portfolio lending
• Best in class servicing and default management capabilities
• Built strong, veteran management team
CONFIDENTIAL WAMUBKEXAM-GS-000331
52
Home Loans Team
John WoodsChief Financial Officer
Years of Experience: 22Years at WaMu: 2
Arlene HydeWholesale
Years of Experience: 25Years at WaMu: 3
John BerensServicing
Years of Experience: 25Years at WaMu: 4
Don WhiteRisk ManagementYears of Experience: 16
Years at WaMu: 1
David BeckCapital Markets
Years of Experience: 25Years at WaMu: 6
Beth GanemHuman ResourcesYears of Experience: 19
Years at WaMu: 11
Mike ZarroChief Admin. Officer
Years of Experience: 27Years at WaMu: 7
Tom MorganChief Technology Officer
Years of Experience: 30Years at WaMu: 5
David SchneiderPresident
Years of Experience: 21Years at WaMu: 3
CONFIDENTIAL WAMUBKEXAM-GS-000332
53
$1,191 $1,180
$863
$631
1H '07 Rev. 1H '08 Rev. 1H '07 Exp. 1H '08 Exp.
Home Loans – Segment Contribution($ in millions)
Commercial Group
6%
Home Lo12%
Retail Banking
63%
Card Services
19%
Revenues Flat
Total Revenues: $13.3 bn
Home Loan Revenues & Expenses% of Q3 ’07 to Q2 ‘08 WM Total Revenues
Note: % of Q3 ’07 to Q3 ‘08Total Revenue excludes Corporate Support / Treasury / Other. Card Services revenue is net of securitization adjustments. Home Loans 1H revenue excludes trading losses and provision for repurchase loans in ’07 and ’08. Home Loans 1H expenses excludes indirect expenses, and foreclosed asset expense in ’07 and ’08.
Expenses down 27%
CONFIDENTIAL WAMUBKEXAM-GS-000333
54
Leading Servicer
Home Equity11%
Subprime6%
Prime83%
Investor: $424bnOwned: $172bnTotal: $596bnSource: Inside Mortgage Finance. Bank of America acquisition of Countrywide pending
Portfolio Overview – August 2008Top 10 Servicers – Q2 2008 ($ in billions)Total
Rank Servicer Servicing1 Wells Fargo 1,497
2 Countrywide 1,485
3 Chase Home Finance 829
4 CitiMortgage 817
5 Washington Mutual 604 6 Bank of America 541
7 Residential Capital 395
8 Wachovia 201
9 IndyMac 195
10 National City Mortgage 190
CONFIDENTIAL WAMUBKEXAM-GS-000334
55
Leading Servicing Capability
• Highly experienced servicing management team
– Average over 19 years of industry experience
– Strong background in subprime servicing
• Efficient, consolidated operations
• State of the art technology
• Strong default performance
Highly Rated by Third Parties
Leading Servicing Franchise
• Standard & Poor’s – “Above Average”
• Fitch – “RPS2+ Full Approval (with Noted Strengths)”
• Freddie Mac (FHLMC) “Tier 1” Platinum Servicer for both Default and Investor
• Fannie Mae (FNMA) – Highest Servicer rating for Investor; maximum payout for Default incentives
CONFIDENTIAL WAMUBKEXAM-GS-000335
56
Loss Mitigation and REO Initiatives• Significant investment in Loss Mitigation and REO Capabilities have resulted in industry leading
Default Management
• Increased Loss Mitigation staff by 124% over past year resulting in 454% increase in work outs
• Comprehensive array of modification alternatives
• Member of Hope Now
• Local Market Representatives – 500+ Community Events Annually
• Servicing facilities located in strong labor markets– Staffing model integrated with default forecasting to anticipate workload spikes
– Outsourcing arrangements smooth out peaking issues
– Industry leading loss mitigation per employee: 75 / person
• REO performance at highest level in industry– REO turnover over 25% for available inventory
– Less inventory aged past 180 days from listing (prime 3%, Home Equity 4%, Subprime 6%)
– Online sales – wamuproperties.com
• Recent Credit Suisse study identified WaMu as leader in foreclosure and REO timeline management
• Upgraded robust dialer capabilities to state of the art Avaya in third quarter providing virtual agent pools across the enterprise
• Installed “Back in the Black” web-based application in 2006 to automate work out decisioning
CONFIDENTIAL WAMUBKEXAM-GS-000336
57
Key Takeaways and Opportunities
• Efficient “retail-only” production platform capitalizing on the strong WaMu name and extensive retail platform
• Scaled cost effective servicing platform
– Competitive cost structure
– Extensive default management systems and expertise
• Significant investment in technology over the last two years will allow WaMu to maintain a competitive cost structure through the next cycle
• Seasoned management team well equipped to proactively respond to the fast changing mortgage environment
• Recent restructuring has positioned the segment for profitable operating earnings
CONFIDENTIAL WAMUBKEXAM-GS-000337
58
Asset Quality Update
CONFIDENTIAL WAMUBKEXAM-GS-000338
59
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
Other Card SFR Home Equity Subprime
1Q’07 2Q’07 3Q’07 4Q’07 1Q’08 2Q’08
Net Charge-offs:
Reserve ($M M ) $1,541 $1,560 $1,889 $2,571 $4,714 $8,456
ActualProvision:
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
Other Card SFR Home Equity Subprime
1Q’07 2Q’07 3Q’07 4Q’07 1Q’08 2Q’08
Net Charge-offs:
Reserve ($M M ) $1,541 $1,560 $1,889 $2,571 $4,714 $8,456
ActualProvision:
• With a provision of near $6 billion in Q2, well above the pace of net charge-offs, we built the reserve to about $8.5 billion last quarter.
• The Q2 increase in net charge-offs to near $2.2 billion largely owed to higher charge-offs on SFR Prime and Subprime mortgage loans.
• The sharper drop in home prices in Q2 was reflected in the severity of charge-offs. Many loans previously partially charged-off were re-evaluated and marked down further.
SFR Prime & SubprimeLoans with Net Charge-Offs*
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
Q1
2007
Q2
2007
Q3
2007
Q4
2007
Q1
2008
Q2
2008
Q3
2008
*
*Loans with significant charge-off activity (at least $10k net charge-off amount)
NCO Actuals extrapolated $mil (3/2 * actual through August)
NCO Growth through August
NCO Growth through August at a quarterly rate
Forecast Q3 Provision range $4 - $5 billion
• Net charge-off growth in Q3 through August slowed to a 16 percent quarterly pace, down significantly from the 60 percent increase in Q2
• Net charge-offs in Q3 through August were $1.7 billion, or $2.5 billion at a quarterly rate
• We expect to continue to provision in excess of net charge-offs in Q3, but the substantial Q2 ending reserve allows the pace of provisions to decline in Q3Residential share of
Provision
Q3 Credit Trends
CONFIDENTIAL WAMUBKEXAM-GS-000340
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Effect of Loan and Property Management Activities on Non-Performing Assets
CommentaryCredit Outcomes
• Total delinquencies increased at a 22% quarterly pace in Q3 through August, similar to the 16% rate of increase in Q2. Non-Performing Loan (NPL) delinquencies increased in July and August, owing largely to a surge of Troubled Debt Restructurings (TDRs)
REO Management and Property Valuation
• We are keeping up a strong pace of REO sales, holding down the foreclosed asset share of non-performing assets to about 13%.
• Estimated property values for charge-off measurement began to include in Q2:
• Additional haircuts
• Increased use of BPOs (vs. AVMs) that reflect property-specific value declines
Loan Modifications
• Loans we classified as Troubled Debt Restructurings (TDRs) are on track to increase to a $4 Billion pace in Q3 ($3.2 billion actuals through August), up from $1.4 billion in Q2
• TDRs in Q3 through August now represent 24% of Non-Performing Assets
0.86 3.861 As of 2008 Q1 Earnings Release2 Net Charge-Offs since March 31, 20083 HELOCs draw n as of March, 20084 Net Charge-Off Losses on foreclosed assets that w ere in REO in March 2008
Total WMI Net Charge-Offs
NCOs on Foreclosed Assets as of March '084
Implied Remaining Losses Beyond August 2008March 2008
BalanceCollateral Type
Losses Since March 20082
Original Remaining Loss Estimate1
SFR
Home Equity3
Card, Commercial, Small Business & Other
Total WMI Loans
Total Home Loans & Home Equity3, March '08 Pool
SubPrime Mortgage Channel
Total Home Loans & Home Equity
Losses on New Home Loan and Home Equity OriginationsNew Draws on Home Equity Lines Since March 2008
Charge-Offs to Date and Implied Remaining Losses Relative to Initial Range
CONFIDENTIAL WAMUBKEXAM-GS-000342
63
($ billions)
PoolMarch 2008
Balance New1 Exit2Continuing3
(March)Continuing4
(August)August 2008
BalanceSFR: Option ARM 52.5 0.1 2.9 49.6 49.5 49.6
SFR: Other 58.7 1.7 4.7 54.0 53.8 55.5
Home Equity: 1st Lien 15.9 0.1 0.8 15.2 14.8 14.9
Home Equity: 2ndLien 44.8 0.2 1.9 42.9 42.5 42.7
SubPrime: 1st Lien 15.1 0.0 1.2 13.9 13.8 13.8
SubPrime: 2nd Lien 2.3 0.0 0.1 2.3 2.2 2.2
189.4 2.0 11.6 177.7 176.6 178.7
3.8 3.8
2.0 11.6 177.7 180.5 182.5
1 Represents the current balance of loans added to the active loan population since March 20082 Represents the balance as of March 2008 of loans that have since become inactive (e.g. by prepayment, full charge-off, entering REO, or other loan termination)3 Represents the balance as of March 2008 of all loans that have remained active to the current period4 Represents the current balance of all loans that have remained active since March 2008. Those current balances exclude any draws on HELOCs that occurred since March 2008, except as reported in the separate line for such draws
Draws on Home Equity Lines Post March 2008Total Home Loans & Home Equity
Net Charge-Off Flow Tracking Cumulative Loss Tracking
Severity Tracking Commentary
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Q2 Q3 Q4
2008 2009 2010
Seve
rity
of Q
uarte
rly N
et C
harg
e-O
ff 1
($ m
illio
ns)
Actual Quarter-to-dateMonitoring Range
500
1,000
1,500
2,000
2,500
Q2 Q3 Q4 2009 2010
2008 (Avg Qtrly)
Qua
rter
ly N
et C
harg
e-O
ff($
mill
ions
)
Actual Quarter-to-dateMonitoring Range
5,000
10,000
15,000
20,000
Q2 Q3 Q4
2008 2009 2010 TotalRemaining
Cum
ulat
ive
Net C
harg
e-O
ff($
mill
ions
)
Cumulative NCO to dateMonitoring Range
The orange lines show the monitoring range of cumulative loss for each quarter or year.
Net Charge-off Flow Tracking: This quadrant tracks the flow of Net Charge-Offs each quarter.
The orange lines show the monitoring range of charge-offs for each quarter.
The solid green bar shows actual net charge-offs to
date for the quarter.
Cumulative Loss Tracking: This quadrant tracks cumulative, the sum of charge-offs to-date.
The solid green bar shows actual cumulative loss to date for the quarter.
Severity Tracking: This quadrant tracks the severity* of Net Charge-Offs each quarter.
The blue lines show the monitoring range of loss severity for each
quarter (or the quarterly average range for 2009 and 2010).
The green bar indicates loss severity to date for the quarter
We will summarize Highlights here.
• Commentary Text
* Net Charge-Off Severity for a given period will be calculated based on loans receiving a charge-off of at least $10K in any month since March 2008. Given this set of loans, this severity measure will be cumulative in that it will represent the cumulative loss to date for all such loans expressed as percentage of their March 2008 balance. Note that loans that become eligible for a charge-off (eg. >180 days past due) that receive smaller than a $10k charge-off or no charge-off in every month since March 2008 are excluded from the both the numerator and denominator.
Cumulative Loss Tracking: Overview
CONFIDENTIAL WAMUBKEXAM-GS-000344
65
500
1,000
1,500
2,000
2,500
Q2 Q3 Q4 2009 2010
2008 (Avg Qtrly)
Qua
rterly
Net
Cha
rge-
Off
($ m
illio
ns)
Actual Quarter-to-date at Quarterly Rate
Actual Quarter-to-dateMonitoring Range
5,000
10,000
15,000
20,000
Q2 Q3 Q4
2008 2009 2010 TotalRemaining
Cum
ulat
ive
Net C
harg
e-O
ff($
mill
ions
)
Cumulative NCO to date at Quarterly Rate
Cumulative NCO to dateMonitoring Range
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Q2 Q3 Q4
2008 2009 2010
Seve
rity
of Q
uarte
rly N
et C
harg
e-O
ff 1
($ m
illio
ns)
Actual Quarter-to-dateMonitoring Range
Cumulative Loss Tracking: Home Loans & Home Equity – March 2008 Pool
Net Charge-Off Flow Tracking Cumulative Loss Tracking
Severity Tracking
$ in Billions
Low High Low High Low High Low High Provision - Non Card 13.7 14.8 3.5 6.0 1.3 1.9 18.5 22.7 Provision - Card 1.8 1.9 1.5 1.7 1.6 1.8 4.9 5.5 Total Provision 15.4 16.7 5.1 7.8 3.0 3.7 23.5 28.1
• Scaling down mortgage business resulted in lower production and sales volume, which will be more than offset by expense saves
585(109)411Mortgage Revenue
• Stable net interest income as $18B YTD balance sheet decline is offset by 17bps NIM improvement$2,261$2,296$2,175Net Interest Income
$2,056$1,513$1,881Operating Earnings
(2,002)
117
814
Q3’08 Forecast
(1,974)
159
767
Q2’08 Actual
(1,986)
248
704
Q1’08 Actual
• Lower gains on new and existing sales due to lower securitization levels and lower excess spread
Sales & Servicing of Consumer Loans
• Resizing efforts on track to deliver expected savingsOperating Expenses
• Fee increases and net new checking account growth of 725K Q3 YTD drive growth
• Jan-Sep YOY depositor fee growth of 7.5%
Comments
Depositor & Other Retail Banking Fees
($ in millions)
2008 Earnings Trends
CONFIDENTIAL WAMUBKEXAM-GS-000355
76
• Credit costs remain in line with expectations as we provision in excess of NCOs
• Residential net charge-off growth decelerating
• Early stage residential delinquency rates moderating to declining
• Q3 reflects ~$420M provision due to maturing credit card securitizations
• Allowance for loan losses expected to be $10.3B at 9/30
~3,500
~900
~4,400
5,531
381
5,913
3,355
156
3,511
Non-card provisionCard ProvisionTotal Provision
• Impacted by market illiquidity and industry-wide credit losses
• In process of finalizing our impairment study to assess additional Q3 write-downs
(518)(707)(198)G/(L) on Trading & AFS Securities (MTM)
~(1,800)(3,328)(1,138)Net Income
(1.10)-(1.20)(3.34)(1.40)EPS (excl BCF)
(35)
(177)
Q3’08 Forecast
(217)
(217)
Q2’08 Actual
(11)
(155)
Q1’08 Actual
• Majority of resizing expenses recognized in Q2
• Continuing to evaluate Retail branch strategyResizing Costs
• FAE elevated driven by $1B increase in foreclosures from 2007 and lower home values
• Decelerating pace of home price declines results in lower valuation write-downs in Q3
Comments
Foreclosed Asset Expense
($ in millions,Except EPS)
2008 Earnings Trend (cont.)
CONFIDENTIAL WAMUBKEXAM-GS-000356
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• Fed ease drives NIM expansion• Pressured by wider 3M LIBOR to Fed Funds spread• Partially offset by on balance sheet Card receivables• Pressure from increasing NPAs
~3.25%3.22%3.05%NIM
• MSR value improves with slower loan prepayments, offsetting capital impact of higher than expected asset levels
• Residential loan portfolio running off• Partially offset by higher on balance sheet Card
receivables due to additional securitization maturities• Continued MFL / commercial loan growth
238,749176,67015,35646,723
239,626183,36810,58945,669
242,814189,086
8,98844,470
Loans in PortfolioResidentialCard ReceivablesCommercial/Other
• Overall balance sheet declines due to lower mortgage production with further reduction expected in Q4310,382309,731319,668Ending Assets
• Reflects uninsured deposit run-off related to IndyMac collapse
• Represents approximately 50% of liabilities• Account growth remains solid
~140,000148,425151,804Retail Deposits
Q3’08 Forecast
Q2’08 Actual
Q1’08 Actual
Comments($ in millions)
2008 Balance Sheet Trend
CONFIDENTIAL WAMUBKEXAM-GS-000357
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100%1%<1%1%2%96%% of Total MBS @ 6/30/08
89%18%32%41%56%95%Book value as % of par value2
$18,241$143$84$108$416$17,490Total MBS
6,590118-86,563CMBS
32640365540155Subprime
523637144408Alt-A
3,3012933523242,863Prime
$7,501$-$-$-$-$7,501Agency
TotalBelow IGBBBAAAAAA1
AFS MBS Portfolio by asset type and Investment grade
(in millions)
1 Includes not rated securities that are guaranteed by the U.S. Government or U.S. Government sponsored agencies2 Book value written down through losses on AFS of $407 million in Q2, $67 million in Q1 and $375 million in 2007 as well as $1.2 billion in other comprehensive income
(as of 6/30/2008)
AFS MBS Portfolio 96% AAA Rated
CONFIDENTIAL WAMUBKEXAM-GS-000358
79
Key Economic Assumptions
Recession scenarioDeeper deterioration of housing market and unstable economy
Fed rate cuts to 1.00% and holds steady through 2009
GDP declines in 2008 ending at -0.5% but rebounds next year
Unemployment rises to an average of 6.5% in 2009
Housing prices in WaMu’s top 10 markets decline by 39% peak-to-trough
Base caseBorderline recession with modest recovery in 2009
Fed cuts rates to 1.75% by YE 2008, but increases to 2.75% by YE 2009
GDP growth remains below trend through 2009
Unemployment peaks at 5.5% in 2008
Housing prices in WaMu’s top 10 markets decline by 20% peak-to-trough
CONFIDENTIAL WAMUBKEXAM-GS-000359
80
Base Long Range Forecast
($ in millions) 2007 2008F 2009F 2010F ($ in billions) 2007 2008F 2009F 2010FNet Interest Income 8,177 8,961 8,698 9,209 AssetsProvision 3,107 16,554 5,053 2,956 Cash & Investments 45,097 27,434 25,195 24,015 Noninterest Income 6,042 5,082 6,439 6,956 Loans 249,789 231,444 214,076 204,888 Non Interest Expense 10,600 9,244 8,851 8,592 ALLL (2,571) (10,687) (7,694) (6,358) Minority Interest Expense 203 301 301 301 Other Assets 35,599 34,628 34,616 33,479 Net Income Before Tax 309 (12,056) 931 4,314 Total Assets 327,913 282,820 266,192 256,024 Tax 376 (4,962) 47 1,280 Net Income (67) (7,095) 884 3,034 Liabilities:Preferred Dividends - 3,553 256 256 Deposits 181,926 182,798 199,566 210,002 Net Income Attrib. to Common (67) (10,648) 629 2,778 Borrowed Funds 108,962 64,825 30,324 6,534 EPS (0.08)$ (8.14)$ 0.36$ 1.59$ Other Liabilities 8,523 8,755 9,005 9,187 Avg Diluted Shares ($M) 864 1,308 1,744 1,744 Total Liabilities 299,411 256,378 238,895 225,723
Recession Scenario Results($ in millions) 2009 2010 2009 2010 CommentsIncome StatementNet Interest Income 8,625 8,690 (72) (519)
NIM 3.42% 3.70% 0.00% -0.16%
Provision Non Card 6,046 1,852 2,526 522 Cum Losses increase from $17B to $19B combined with the acceleration of loss timingProvision Card 1,716 1,822 184 195 Card provision increases as NCL increase with worsening economic conditions
Total Provsion 7,762 3,673 2,710 717
Non Interest Income 5,798 6,324 (641) (632)
Non Interest Expense 9,067 9,169 216 577 FAE increases along with higher expenses due to increasing volumes
Minority Int. Exp 301 301 - -
Pre-tax net Inc (2,707) 1,869 (3,638) (2,445)
Tax (1,323) 360 (1,370) (920)
Net Income (1,384) 1,509 (2,269) (1,525)
Preferred Dividends 256 256 - -
Net Income attrib to common (1,640) 1,253 (2,269) (1,525)
EPS (0.94) 0.74 (1.30) (0.89) Return to profitability delayed to Q3 2009
Non Interest Income DetailsMortgage Banking Income 722 801 (96) (34) Retail Fees 3,197 3,456 (177) (191) Card Fees 933 1,134 (11) (13) Lower Card balancesCard Sales/Svg 377 397 (317) (333) Higher NCLs drives lower excess spreads combined with higher discount ratesOther 570 537 (40) (60) Lower custodial deposit fees in HLsNon Interest Income 5,798 6,324 (641) (632) CapitalTE/TA 7.35% 8.14% -0.99% -1.75%TCE/TA 4.52% 5.24% -1.02% -1.74%Tier I Leverage 7.42% 8.24% -0.99% -1.74%Tier I RWA 8.26% 8.95% -1.14% -1.98%
Lower interest rates improves GOS with higher production, which is more than offset by Consumer spending softens combined with lower account acquisition and lower incident
NIM declines with falling short term interest rates due to higher "loan to deposit ratio" and higher non-accrual reversals. At absolute rate of 2% the ability to reduce deposit pricing limited, and the current ALM position reduces sensitivity to decling rates. In addition, Libor Treasury spreads widen causing MTA loans to reprice faster than borrowings.
Lower rates drives faster run off, which impacts the MSR and Service fees more than offsetting improved GOS. Softening consumer spending drives lower retail fee growth, and high NCLs impact Card residual values
CONFIDENTIAL WAMUBKEXAM-GS-000361
82
Outstanding Capital SecuritiesNon Equity-Linked
Equity-Linked
Basket D (75%)100% up to33% of ACE
25% of Tier 11,00012/15/20129.750%PerpNC10 ADP/REITWashington Mutual Pfd Funding Trust IV10/18/2007
Basket D (75%)100% up to33% of ACE
25% of Tier 15006/15/20126.895%PerpNC5 ADP/REITWashington Mutual Pfd Funding Trust III5/20/2007
Basket D (75%)100% up to33% of ACE
25% of Tier 150012/15/20166.665%PerpNC10 ADP/REITWashington Mutual Pfd Funding Trust II12/5/2006
Basket D (75%)100% up to33% of ACE
50% of Tier 15009/18/2011L + 70PerpNC5 DRDWashington Mutual9/11/2006
Basket D (75%)100% up to33% of ACE
25% of Tier 11,2503/15/20116.534%PerpNC5 ADP/REITWashington Mutual Pfd Funding2/24/2006
Basket D (75%)100% up to33% of ACE
25% of Tier 17503/15/20117.250%PerpNC5 ADP/REITWashington Mutual Pfd Funding (Cayman)2/24/2006
Basket A (0%)100% up to12% of ACE
25% of Tier 158Traditional TPSWashington Mutual (various)2001 - 2005
Moody’sTreatment
S&PTreatment
Regulatory Treatment
Size($mm)Call DateCouponStructureIssuerIssue Date
Basket D (75%)100% up to33% of ACE
50% of Tier 13,000• 22% Premium• $21.25 Conversion
Price • Optionally convertible by holder at
any time
• WM can force conversion after 12/18/12 if stock price exceeds 130% of conversion price
7.750%Optional Convertible Preferred
Washington Mutual
12/17/2007
Basket A (0%)[TPS portion]
100% up to12% of ACE [TPS portion]
25% of Tier 1 [TPS portion]
1,150 [755 TPS]
• Unit consists of trust preferred + warrant
• Exercise price of warrantis initially $32.33 accreting to $50 at expiration date
• WM can force conversion after 5/3/06 if stock price is above $49.33
5.375%PIERS UnitsWashington Mutual
4/24/2001
Moody’s TreatmentS&P Treatment
Regulatory Treatment
Size ($mm)TermsCall/Conversion DateCouponStructureIssuerIssue Date
CONFIDENTIAL WAMUBKEXAM-GS-000362
83
2008 Direct Expense – Long Range Forecast($ in millions)
Other Noninterest Expense 852 848 39 446 169 2,355 Total 4,118 1,704 220 1,143 2,081 9,266
Memo: Resizing Expense $224 $185 $2 $3 $209 $624
CONFIDENTIAL WAMUBKEXAM-GS-000363
84
Headcount Overview(6/30/2008)
Retail Bank Home Loans Commercial GroupRetail Store Distribution 22,046 Home Loans Support 1,058 Multifamily Lending 281 Relationship & Investing 1,659 Home Loans Production 2,272 Commercial Real Estate 73 Consumer Deposit Pricing 70 Wholesale Channel 598 Commercial Mortgage Lending 103 Retail Marketing 47 Consumer Direct 143 Commercial Treasury Solutions 110 Customer Care / Operations 2,892 Servicing 2,829 Other Commercial Group 6 Enabler Groups 560 FAS 91 257 Support Operations 750 Technology 412 Overhead / Support 1 Total 27,687 Total 7,157 Total 1,323
Card Services Corp. / Treasury / Other WM ConsolidatedCommunications 16 Technology 1,013 Retail Bank 27,687 Credit 117 Community & External Affairs 123 Home Loans 7,157 Executive 4 Finance & Treasury 444 Commercial Group 1,323 Finance 80 Legal 644 Card Services 2,915 Human Resources 31 Communications 55 Corp./ Treasury / Other 4,116 Marketing 383 Enterprise Operations 371 Technology 207 Human Resources 709 Operations 2,077 Enterprise Risk Management 377
Executive 27 Marketing / Ecommerce 353
Total 2,915 Total 4,116 Total 43,198
CONFIDENTIAL WAMUBKEXAM-GS-000364
85
Credit Performance Results
Note: Home Loans SFR Prime includes SFR Prime, Custom and Builder portfolios Subprime Mortgage Channel includes Purchased SMF, Long Beach Mortgage, HEL Subprime, and HEL Purchased portfolios. Home Equity includes HEL and HELOC portfolios; excludes Other Consumer portfolio
(in $ Millions)SFR Prime Jun-07 Sep-07 Dec-07 Mar-08 Jun-08Outstanding Portfolio Balance $90,601 $108,003 $112,614 $110,508 $106,929
Indications of Interest / Initial Management Meetings (March 10-14)
— JP Morgan, Wells Fargo
Second Round Management Meetings / Final Bids (March 17 – April 1) — JP Morgan – Offered $5.00 / share with upside of $3.00 / share via a contingent value security
if the low end of losses in home equity portfolio (8.5% cumulative losses on $60.6bn home equity portfolio) proved to be correct
− Based on current assumptions of losses in home equity portfolio, aforementioned contingent value security would be worth $0
— Wells Fargo declined second round meetings due to concerns over mortgage portfolio and geographic overlap in higher-risk states (i.e. California)
Mark on portfolio at closing will be the primary driver for sizing the capital requirement of the acquiring institutions
Likely to be calculated based on a discounted cash flow methodology (expected prepayments, interest, losses, etc) as level 3 assets
BAC / CFC provides one recent data point on “accountant-approved” methodology
Form of Consideration
Contingent value security may be a form of consideration for potential acquirors Likely to be linked to performance of some subset of higher risk residential real
estate portfolio (or all of it) — JPMorgan linked to low-end of loss range on home equity portfolio to obtain
full value of CVS
Capturing Discount in Debt / Preferred
WaMu’s debt and preferred outstandings are currently trading at a significant discount to par — Aggregate discount of approximately $10.0 billion on $24.0 billion liability /
preferred base Capturing this discount in some fashion prior to executing a strategic transaction
would potentially improve the ability to pay of a potential partner due to decreased goodwill creation / capital needed
Transaction contingent on exchange / tender of debt / preferred may also be structured
Illustrative Impact at Close Moody's Stress Case Company Stress Case
Credit Impact Discount Rate Illustrative Mark Credit Impact Discount Rate Illustrative Markon Mark Impact on Mark to Market on Mark Impact on Mark to Market
Financial Assumptions — Financial data as of June 30, 2008. Market data as of August 8, 2008 — Acquirer IBES standalone financial assumptions — $5.00 purchase price
Transaction Assumptions — 100% stock financed — Company High Stress Case: $14.4 billion total pre-tax mark in excess of allowance at closing — Moody’s Stress Case: $18.5 billion total pre-tax mark at closing in excess of allowance at closing — Pro Forma Capital ratios
− Wells Fargo, USB, BBVA, SMBC maintain current Tier 1 RBC ratio − JPMorgan, Barclays and TD allowed 60 bps of Tier 1 capital flexibility − Santander allowed ~15 bps of Tier 1 capital flexibility − Acquirer issues shares at 10% discount to recapitalize entity
— Identifiable intangibles created: 1.5% of core deposits (CDI), 3.0% of managed credit card receivables (PCCR) — Restructuring charge of 1.5x run-rate synergies, over three years
Synergies detailed below (phased in 50% in 2009, 75% in 2010 and 100% thereafter)
A bank holding company (“Acquiror”) is seeking to acquire another bank holding company (“Target”) which holds a portfolio of higher risk assets (“Assets”) on its balance sheet
In addition to cash and other consideration the Acquiror can deliver to Target shareholders Contingent Value Securities (“CVS”) which track the performance of the Assets and convert into common stock of the Acquiror based on Asset performance
CVS return will be based on asset performance post purchase accounting mark
Initial value of the CVS would be based on the size of the Asset portfolio, and the purchase accounting mark on the Assets
Dividends would be non-cumulative and paid based on an arms length fixed annual rate
Conversion into Acquiror common stock would be mandatory and occur upon the earlier of [5 yrs] and the date on which [80%] of the assets have paid off — Investors receive a variable number of shares
to return a fixed value within a range based on (i) performance of the asset portfolio and (ii) Acquiror stock price on the conversion date
— Alternately, upside can be capped or shared between Acquiror and Target shareholders
Contingent Value Securities Regulatory, Rating Agency & Accounting Considerations
Regulatory & Rating Agency
The securities will be non-cumulative perpetual preferred stock with a mandatory conversion feature, and will qualify as Tier 1 and unrestricted core capital at the Federal Reserve
Rating Agencies will likely treat the security as a mandatory convertible preferred, which would achieve Basket E (100%) at Moody’s and 100% equity credit at S&P (up to 50% of ACE)
Accounting The value of the CVS will vary based on the value of the underlying assets, and will therefore likely be viewed as a
derivative — FAS 133 requires that the derivative should be marked to market on an ongoing basis. Consistent with the
guidance on contingent consideration in FAS141R, the change in fair value would be recorded in current earnings or OCI
— Changes in value in the CVS may be offset by electing fair value accounting on the underlying assets
− Size and timing of mark-to-market adjustments on the CVS may differ from adjustments on the underlying assets due to different assumptions underlying the valuation of each1
Since there is a requirement to deliver a variable number of shares within a range, the CVS will likely receive “if-converted” accounting treatment
To avoid EITF 00-19 issues, the CVS will require a share cap to limit the amount of common shares that could potentially be issued
1 Including volatility of the Acquiror’s share price, shifts in interest rates and shifts in credit spreads
Assets A portfolio of higher-risk mortgage related assets with starting aggregate face or principal amount of $● (the “Starting Unpaid Principal Balance”)
Securities Offered Contingent Value Securities (“The Securities”)
Liquidation Preference Initially $● in the aggregate, or $● per share,
Conversion Date The earlier of (i) the date which is [5] yrs from the issue date, and (ii) the Asset Disposition Date
“Asset Disposition Date” means the last day of the first calendar quarter as of which the Unpaid Principal Balance is [20]% or less of the Starting Unpaid Principal Balance
“Unpaid Principal Balance” means, on any date, the aggregate principal amount of the loans that are part of the Assets on such date
Conversion On the Conversion Date, the Securities will convert into a number of shares of Acquiror common stock equal to the Conversion Valuedivided by the volume weighted average price of Acquiror common stock over the ten day period preceding the Conversion Date,provided that the Acquiror shall in no event be obligated to deliver more shares than the Maximum Share Cap
The “Conversion Value” will equal the sum of (a) the Liquidation Preference minus (b) Aggregate Asset Gains and Losses minus (c) Remaining Expected Losses
“Aggregate Asset Gains and Losses” means the aggregate sum of realized losses and realized gains minus the aggregate sum of expected losses as reflected on the Acquiror’s consolidated balance sheet at inception of the transaction as calculated on theConversion Date by an independent investment banking firm of international standing (the “Calculation Agent”)
“Remaining Expected Losses” means, with respect to Assets still outstanding on the Conversion Date, the aggregate sum ofexpected future losses as calculated on the Conversion Date by the Calculation Agent
“Maximum Share Cap” means [2 times] the Liquidation Preference divided by the volume weighted average price of Acquiror common stock over the ten day period preceding the date of issuance
Dividends Non-Cumulative Dividends will be payable on the Securities as and if declared by the Board of Directors at a rate equal to [8]% per annum applied to the Liquidation Preference of the Securities quarterly on ●,●,● and ● of each year, commencing on ●, 2008 (each, a “Dividend Payment Date”). The period from, and including, a Dividend Payment Date to, but excluding, the next succeedingDividend Payment Date is referred to herein as a “Dividend Period”.
Dividends on the Securities are not cumulative. Accordingly, if for any reason the Acquiror does not declare a dividend on theSecurities before the Dividend Payment Date for a Dividend Period, that dividend will not accumulate and holders of the Securities will have no right to receive, and the Acquiror will have no obligation to pay, a dividend for that period, whether or not dividends onthe Securities are paid in full or in part in the future.
If full dividends on the Securities are not paid for a particular Dividend Period, the Acquiror will not declare or pay dividends on orredeem or purchase any common stock or other junior securities during the next succeeding Dividend Period.
Ranking The Securities will rank junior to all debt of the Acquiror, senior to common equity, and pari passu with all other preferred shares of the Acquiror
Covenants In the charter document setting forth the terms of the Securities (the “Issuance Document”), the Acquiror will covenant as follows:
the Calculation Agent will calculate, for relevant periods and as of relevant dates, the Aggregate Gains and Losses andRemaining Expected Losses (and related definitions used in computing defined amounts) in accordance with the definitions ofthose terms set forth in the Issuance Document; and
at all relevant times, the Acquiror will have entered into and have in full force and effect a “Servicing Agreement” with an “Eligible Servicer”. “Eligible Servicer” means ●; each such Servicing Agreement shall have at least the following terms: ●
adopt a policy to manage the Assets with the objective of maximizing the gains on the Assets, and to adopt that standard as thecore servicing standard in the Servicing Agreement
Servicing Commencing upon issuance of the Securities and continuing through the Redemption Date, there shall at all times be a “Servicer” who shall be an Eligible Servicer. The Servicer shall be responsible for collecting on and otherwise servicing the Assets including assets that are ● or more days delinquent or are characterized as non-performing assets. The initial Servicer shall be jointly agreed upon and appointed by the Acquiror and the Target.
Issuance • The Securities will be issued in registered, global form The Securities will be registered under the Securities Act of 1933, as amended, and listed on NYSE
Contingent Value Securities Illustrative Impact – Wells Fargo Acquires WaMu
CVS has original notional value $4,000 mm ($2.35 / share) — Initially calculated as ~40% of mark on Option ARM portfolio at closing (mark on portfolio is 19% of 12/31/08E
balance of $51.8 billion)
Value of security contingent upon performance of reference pool (Option ARM portfolio) — Full value if portfolio performs as marked — Value adjusts on linear basis based on portfolio performance
Overview of Payment Pro Forma Impact 2009 2010 2011
As Expected: Moody's StressGain / (Loss) on Marked Portfolio $ 0.0 $ 0.0 $ 0.0Gain / (Loss) on CVS 0.0 0.0 0.0Value of CVS 4,000 4,000 4,000Wells Fargo Stock Price $ 32.57 $ 42.02 $ 45.28Number of Shares Issued 122.8 95.2 88.4Accretion / Dilution 34.3 % 36.6 % 36.3 %
Stronger Performance: Company StressGain / (Loss) on Marked Portfolio $ 276.1 $ 276.1 $ 276.1Gain / (Loss) on CVS (276.1) (276.1) (276.1)Value of CVS 4,276 4,552 4,828Wells Fargo Stock Price $ 32.57 $ 42.02 $ 45.28Number of Shares Issued 131.3 108.3 106.6Accretion / Dilution 34.1 % 36.1 % 35.7 %
Debt for Equity Exchange Exchanging Extant Debt and/or Preferred for Common Equity
Washington Mutual’s debt and preferred stock is trading at a significant discount to par
Similar to recent senior debt repurchases, a repurchase of discounted debt creates an after tax gain
A further extension to this strategy would be for WaMu to exchange equity for some of its existing subordinated debt and / or preferred stock
An equity exchange increases equity by — The price paid for the debt or preferred redeemed, plus — The aggregate discount less tax leakage
− Tax leakage only applies to debt and trust preferred – there is no tax leakage on Series K DRD Preferred, Series R Convertible Preferred, and REIT Preferred securities)
In addition, can re-balance capital structure by reducing hybrids outstanding, which could improve regulatory and rating agency sentiment
The most likely route for an exchange would be through a Section 3(a)(9) exemption — A direct solicitation by Washington Mutual to investors can avoid SEC filing but must conform to tender rules
and may be subject to the same disclosure requirements as a public common equity raise
Overview of Countrywide Mark to Market WM vs. CFC Asset Quality Comparison ($ in billions)
BofA announced a total mark to market on their Countrywide assets of $14.3bn, or 15.6% of the $91bn HTM loan portfolio — BofA officials said marks range across asset classes from single digits to mid-20s
Underlying assumptions on these marks is peak-to-trough nationwide HPD of 25-30%, with ~38-40% in FL and CA resulting in 17.3% cumulative loss on Countrywide Financial loans
Comparing loan portfolios suggests WM’s performance is dramatically better than CFC’s, although higher proportion of subprime loans increases loss content
Loans: Held for sale $11.8 $15.7 Held for investment 99.3 98.6
Total Loans 111.1 114.3
Allowance for loan losses (5.1) (3.4) Securities purchased under agreement to resell,
securities borrowed and fed funds sold 6.6 7.8 Investments in other financial instruments 18.8 20.9 MSR, at estimated fair value 18.4 17.2 Other assets 22.3 42.2
Total Assets $172.1 $199.0
Deposits $62.8 $63.3 Securities sold under agreement to repurchase 3.5 17.9 Notes payable 82.3 87.7 Other liabilities 13.1 16.9
Total liabilities 161.7 185.8 Shareholders' equity 10.4 13.2
Total Liabilities and Shareholders' Equity $172.1 $199.0
Purchase Price Countrywide common stock exchanged (in millions) 583 Exchange ratio 0.1822
Corporation's common stock exchanged (in millions) 106 Purchase price per share of the corporation's common stock1 $38.73
Total Purchase Price $4.1
Preliminary Allocation of the Purchase Price Countrywide stockholder's equity2 8.4 Pretax adjustments to reflect assets acquired and liabilities assumed at fair value3
Loans4 (8.1) Mortgage servicing rights (1.7) Deferred costs and currency adjustments on loans and debt 1.6 All other (4.6) Pretax total adjustments (12.8) Deferred income taxes 4.5
After tax total adjustments (8.3) Fair value of net assets acquired 0.1
Preliminary Goodwill Resulting from the Countrywide Merger $4.0
1 The value of the shares of common stock exchanged with Countrywide shareholders was based upon the average of the closing prices of the corporation's common stock for the period commencing two
trading days before, and ending two trading days after January 11, 2008, the date of the Countrywide merger agreement. 2 The value of the remaining Countrywide shareholder's equity after the cancellation of the Series B convertible preferred shares owned by the corporation prior to the merger. 3 Adjustments shown in the preliminary purchase price allocation are based on values within current estimated ranges. 4 Loan portfolio credit adjustment of $14.3 billion less the allowance for loan and lease losses of $5.1 billion less $1.1 billion of loss exposure for non-impaired loans that will flow through consolidated
Total Mark-To-Market $ 24.2(-) 12/31 Reserve (9.7)(-) Estimated 2H 2008 NCOs (5.7)Estimated Pre-Tax Mark at 12/31 $ 8.8
1 Bank of America indicated a range from single digits to mid twenties for the mark on the Prime First and Subprime. Mark for Prime Pay Option, HELOC and Fixed Rate Second are GS estimates. 2 GS estimates.
CONFIDENTIAL WAMUBKEXAM-GS-000086
WAMUNYCS\Aug 14\WM 8.14.08 Discussion_4.doc vyaank 13 Aug 2008 18:42 1/10
DRAFT
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Discussion Materials for
Goldman, Sachs & Co. August 14, 2008
CONFIDENTIAL WAMUBKEXAM-GS-000087
QUP Washington Mutual
N
For: Investment Division Original Date of 1997 Latest Revision: October 2007
This Bulletin should be read in conjunction with the Memorandum set forth in "Policies and Procedures Confidential or Proprietary Information, The Chinese Wall and Personal Trading" which can be found on the Central Compliance website. The Firmwide Chinese Wall Memorandum sets forth certain guidelines to be followed by all personnel in the Investment Division (except the Merchant Bank, for which there is a . see Merchant Bank Chinese Wall Bulletin). This Bulletin Is to personnel In all our offices worldwide. In many cases, these guidelines have been in effect for several years and are restated here as a reminder for all concerned. The terms confidential infOrlm"ti"n. Dr.~o'rietal·V i,.forlTlatio". material and Da,rtner. e"lDlovee or related account as used In this Bulletin are defined in the Firmwide Chinese Wall Memorandum.
It is the responsibility of all IBD personnel to follow the guidelines set forth in this Bulletin and to use all reasonable efforts to ensure there are no leaks or misuses of confidential proprietary information entrusted to us or developed by us.
If you have any qUiestio'ns conc,ero,in,o .. '.I_I'_ •. ~ set forth in this you should consult the or C~'molianice Deoartlnent.
Wall When handling confidential or proprietary information, you must observe the Procedures for Handling Confidential and Proprietary set forth in the Firmwlde Chinese Wall Memorandum and the IBO Procedures set forth in Appendix A to this Bulletin. In you are reminded that no one should disclose confidential or to a person who has a NEED TO KNOW the information in order to serve the business purposes of the Firm or its clients and who can be to maintain its
This Firm has adopted Chinese Wall procedures designed to prevent oe,'sonnel engaged In research, trading, or other non-adViSOry activities sales and
side of the from gaining access to confidential information that the Firm may have acquired or developed in connection with the investment banking or other advisory activities of other personnel, such as IBD personnel, (the side of the Firm). it Is essential that you follow the guidelines for communications with the sales and side of the Firm lin,t .. ,r-nivisiCIDiil comlnunic:atiorls) set forth below when contacting anyone on the sales and trading side of the Firm.
IBD personnel may communicate among themselves on a need to know basis and ~ .~ with other personnel on the advisory side of the Firm (including in the
Merchant Bank) who have a need to know the Information in order to serve the business purposes of the Firm or Its clients. When communicating with the Merchant Bank personnel, you should also be sensitive to potential conflicts of interest.
The filing of a registration statement with the Securities and Commission or the circulation of an offering memorandum does not permit you to provide other written information concerning the offering - for sales memos and other specifically approved material (e.g., - to anyone on the sales and trading side of the Firm, Notwithstanding the filing of a registration statement or the circulation of an offering memorandum, you should not disclose to anyone on the sales and trading side of the Firm any confidential information that has not been authorized for dissemination (e,g" company projections),
You should note that even following the termination or consummation of a project, there may be material non-public information concerning the assignment, the confidentiality of which you will be required to maintain,
Inter-Divisional For purposes of these guidelines, it is necessary to inter-divisional communications into three (i) contacts that involve the communication of confidential information ' (ii) contacts that do not involve the communication of confidential information but that do relate to a security or securities that you or your department or group has placed on the list (Grey List . and (iii) routine communications,
These guidelines do not restrict routine communications. You should note, however, that any contact relating to an issuer with whom the Firm has executed an engagement letter or confidentiality agreement in connection with an assignment, or from whom the Firm has received confidential information in connection with an
may be a List security communication because the securities of such an issuer will ordinarily be placed on the List.
All IBD personnel who need to obtain information from divisions or departments on the sales and side of the Firm (with the exception of interaction with the Global Investment Research Division which is governed by separate rules and procedures) should as follows:
• Unless you are certain that your contact is a routine communication, you must first consult the senior team leader and identify the person whom you propose to contact, the nature of the information that you need to obtain, and the degree (if any) to which you will need to communicate confidential information to such person in order to obtain the needed information. The senior team leader must determine whether the proposed contact is a wall-
Grey List security communication, or routine communication, In making such determination, the senior team leader may consult with other IBD MDs, Special Execution, and other in the Legal or Compliance
• If the senior team leader determines that the proposed he or she may authorize you to make the proposed
uu"u.;m to the wall·crossing procedures set forth below:
o You must contact the Control Room (902'1511) and (i) identify the person whom you propose to contact and the se'::f1'-'fV or securities involved, (ii) affirm that the senior team leader
OM~02~or07 2
IBD Chinese Wall Bulletin
has authorized the wall-crossing, and (iii) provide such additional information as you may be asked to
o The Control Room will then contact the supervisory person in your proposed wail-crasser's department in order to get his or her approval. If such is obtained, the Control Room will notify you that you may contact the wall-crosser, In other cases, you may be asked to make to obtain the needed information in a manner which does not involve direct contact between IBD and the sales and trading side of the Firm,
o The Control Room will document and maintain a record of each wallcrossing,
o All conversations with a wall-crosser should be conducted in a manner rlp',im1prl not to be overheard by persons not authorized to receive confidential information, In particular, you should take to avoid discussions involving confidential information that might be overheard on the trading floor, and should not have such discussions on the telephone lines of any trading or sales personnel.
c Communications to a wall-crosser should be limited to that information which the wall-crosser needs to know in order to carry his or her other work for the IBD team, Unless the circumstances necessitate such communication (e,g" particular efforts should be made to avoid communication of confidential information (such as long-term projections) that will not become during the course of the related transaction, Disclosure of such information could result in the restriction of trading, research or other activities of the wall-crosser or of the Firm for an indefinite period of time even after the transaction is or terminated,
It is critical that you remember that when you have been authorized to contact a wall-crosser for one purpose, you may not contact him or her for another purpose unless you have received separate authorization to do so,
Any issues concerning wall-crossing will be resolved by senior persons in the relevant departments in conjunction with SpeCial Execution and the Legal or Cnlmnlii'l"rp Department,
A wall-crosser with whom an IBD member has communicated pursuant to these wallprocedures will be subject to all the restrictions (including restrictions on
personal trading in the subject security) applicable to the IBD team for whom the wall-crosser is working as long as he or she possesses material confidential information, Accordingly, a wall-crosser must maintain the confidentiality of such information and may use it for the business purposes for which it was disclosed, In the wall-crosser may not without the express permission of the Execution Group, or other appropriate persons in the Compliance or Le!)al Department (i) disclose any confidential information learned in any conversation with the IBD to any person not a member of IBD or (ii) resume normal sales, trading or research activities in of the security,
• List communications. If the senior team leader determines that the proposed contact is not a wall-crossing but is a List security
October 2007 3
C;ONFIDENTII\L VVArJ:U
communication, you may make the proposed contact after you notify the Compliance Control Room of the identity of your proposed contact and the or securities involved.
• Routine communications. If the senior team leader determines that the prclpc)Sed contact is a routine communication (and not a wall-crossing or a
List communication), you may make the proposed contact.
• of communications. At all times, you should use common sense and good judgment in being careful not to provide more information about your project than is necessary to obtain the information that you need. Conversations should be initiated by you and be limited to discussion of information necessary for your contact to provide you with the information that you need.
• in nature of communications. If after you have received authorization for a Grey List security communication, it then develops that you may need to communicate confidential information, you must nr<>m,ntllv notify the senior team leader and request his or her authorization of a wallcrossing.
• Restricted list Communications. You are reminded that you must continue to follow these procedures with respect to securities that are placed on the Restricted Trading List.
• Interaction with the Global Investment Research Division. The foregoing do not apply to interactions between IBD personnel and members of the Global Investment Research Division. All communications between personnel in these division must be conducted in compliance with the rules and governing such communications.
The Department maintains a confidential Grey List of securities as part of the Firm's effort to monitor the use of confidential information. sales and trading activities (with the exception of equity risk arbitrage activities) are
unaffected by the placement of a security on the Grey List. However, the Comillicince D'eoartm,?nt may on appropriate occasions selective restrictions or limitations on transactions in securities on the Grey List or intervene to break trades involving such securities in order to avoid appearance of impropriety. For a general discussion of the Firm's List policy procedures, see the Firmwide Chinese Wall Part IV.
Relevant securities of an issuer will ordinarily be placed on the List (il when the Firm has received material confidential information concerning that or its issuer in the course of the Firm's involvement in a transaction or other event that has not been publicly announced, (il) when the Firm has been to advise a company with respect to a transaction or other market-sensitive event that has not been publicly announced or (iii) when the Firm enters into a confidentiality agreement in connection with an assignment.
October 2007 Page 4
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It is that securities be placed on the List as soon as possible, when appropriate, For that reason, it is essential that IBD employees observe the following procedures:
• m The senior team leader has the responsibility of informing, or directing another lBD professional to inform, the Control Room promptly when the Firm receives confidential information regarding an issuer in connection with an assignment, or is highly confident that the Firm will in the near future enter into a confidentiality agreement or execute an letter in connection with an assignment, The senior team leader, or his or her
esianl2e, should inform the Control Room of any issue of publicly traded securities affected by an assignment, The Control Room must be notified even if the affected security or securities already appear on the Grey List for another reason,
• It is important that all IBD personnel be sensitive to facts which would suggest that the securities of a company should be on the Grey List, Requests to add securities to the Grey List may be made anyone, provided that he or she first consults with the senior team leader involved in the transaction, In such cases, the Control Room should be given the name of the senior person who has confirmed the decision to request the addition,
• It is the of the senior team leader to inform, or direct another ISD professional to inform, the Control Room when circumstances no longer require the monitoring of sales and activities with to the of its issuer (e,g" when a transaction is completed or terminated or when information received has been publicly disclosed or has become so outdated that it is no longer material) and the
should therefore be deleted from the List, It is also the Drima responsibility of the senior team leader to inform, or direct another ISD professional to inform, the Control Room when circumstances -such as a news release - suggest that a security be removed from the List and placed on the Restricted Trading List. Requests to delete a security from the List may be made by anyone, provided that he or she first consults with the senior team leader involved in the transaction, In such cases, the Control Room should be given the name of the senior person who has confirmed the decision to the deletion,
If you are uncertain as to whether a security should be on or taken off the Grey List, you should consult senior personnel in Execution or the or Compliance
0, Restricted Trading List
The Compliance Department maintains a Restricted Trading List which are subject to restrictions on publication of written rp<;p"rch
customer orders, trading for proprietary accounts and for and related accounts, and other activities, For a general discussion of the Firm's Restricted Trading List policy and procedures, see the Firmwide Chinese Wall Memorandum, Part V. It is essential that employees in investment or other adviSOry activities be alert to circumstances that might require the placement of a security on or off the RTL A security may be placed on the RTL for a number of reasons including (In non-financing transactions) the need to reinforce the Chinese Wall in order to avoid the possible appearance of misusing confidential information and to
5
NFIDENT!f\L
comply with the requirements of rules and regulations such as Regulation M (tr.~rli'nn by persons interested in a distribution) or Rule 14e-S (prohibition other purchases during tender offers or exchange offers). A security ordinarily will not be pla,:ed on the RTL until after a relevant transaction (and ordinarily the Firm's involvement in the relevant transaction) has been announced or has otherwise become a matter of public record.
To ensure the effectiveness of the RTL, the senior team leader has the primary responsibility of notifying, or directing another IBD professional to notify, the Control Room when a security should be placed on the RTL The senior team leader, or his or her designee, should inform the Control Room of all issues of publicly traded securities that are affected by the transaction and should be on the RTL The Control Room must be notified even if the affected security or securities already appear on the RTL for another reason.
Requests to add securities to the RTL may be made by any person, that he or she first consults with the senior team leader involved in the transaction. In such cases, the Control Room should be given the name of the senior team leader who has confirmed the decision to request the addition.
The senior team leader has the primary responsibility of notifying, or directing another IBD to notify, the Control Room when a security should be taken off the RTL because the Firm's involvement in the transaction relating to the security has the transaction has been terminated or consummated, or circumstances otherwise obviate the need to restrict sales and trading activities. A security ordinarily will not be removed from the RTL without the agreement of the person who initiated its placement on the RTL
You must continue to comply with Chinese Wall procedures, referred to in this Bulletin and more fully described in the Firmwide Chinese Wall Memorandum, with respect to securities on the Restricted Trading List.
General Firmwide policies on personal trading are set forth in Section VII and IX of the Firmwide Chinese Wall Memorandum. Critically important is the pr,ohibiticm on trading on the basis of material confidential information, Further, you must comply with the following additional IBD guidelines:
• No Client Securities. Subject to the additional requirements outlined below in Senior you may not engage in any transaction, for any of your related accounts, in any or derivative thereof of any company which is a client of the Firm or which has been as a desired client by the Firm if (il you have for handling the Firm's relationship with such company or you or your have been involved in the affairs of such company in the previous twelve months, or (iL) if you are aware that the Firm is working on a transaction on behalf of the company or that the Firm is working on a transaction that may affect the securities of the company.
• Senior Personnel. Senior personnel and those personnel with management and/or supervisory as to multiple clients and targeted issuers should be very cautious in light of knowledge obtained as a result of their
Page 6
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positions in determining that transactions.
are free to engage in personal securities
• Clearance Procedures. provided in Securities U~'U'" all transactions in any or derivative thereof for any of your related accounts must be cleared in advance by: i) the signature of your Business Unit Leader (BUL) or Business Unit Manager (BUM) on the IBD Personal Securities Transaction Request Form (attached at the end of this section); and ii) the Request Form to the Control Room of the Compliance in New York 1).
For those on mobility: Before signing the mobility department will determine that the person's "home" department consents to trade.
the BU L/BU M of the of the requesting
In order to protect the integrity of the approval process, you are required -absent unusual circumstances - to execute an trade before the end of the business day the day on which you are notified of the trade
• Securities. Pre-approval is not required for transactions in (i) US securities ( including or futures) and government securities
(ii) unsecured debt of US government sponsored entero not linked to any other securities ( including options or futures), (iii)
options on broad-based market indices S&P500), (iv) open-end mutual funds, or (v) investment municipal securities. If you are uncertain whether pre-approval is required, you should consult the Control Room.
• Reports of all securities transactions by IBD personnel will be forwarded by the Control Room to selected senior IBD managers and
heads for their review.
• Exceptions to these gUI,oeil must be approved by your department/group head
Supervisory "''''l5p'lIm:;/U,IIIIY
IBD supervisory personnel should ensure that each new IBO MD or employee is apprised of the Firm's and concerning the handling of confidential and proprietary information and his or her responsibilities to safeguard such information.
All questions or concerns you may have about this Bulletin should be addressed to the Legal or Compliance Requests for exceptions should also be referred to the or Compliance
If you believe that you may have obtained or disclosed confidential or information in a manner not in accordance with the guidelines set forth in this Bulletin or the procedures set forth in the Firmwide Chinese Wall Memorandum, you should contact the or Compliance Department and should not use or further disclose the information.
October 7
DENTlflL V\/t-J\11 U
H. Ac~:novvlea'aernents AIIIBD personnel are to sign a statement this Bulletin, IBD Administration regularly reviews IBD rosters worldwide to assure compliance with this All non-Goldman Sachs and contingent worker personnel utilized the Division will be IBD Administration to a confidentiality statement to commencement work for the Division,
-8
lao Chinese Wall Bulletin
All IBD personnel should observe the Procedures for Handling Confidential and Proprietary Information, set forth in the Firmwide Chinese Wall Memorandum. In addition, all IBD personnel should observe the guidelines:
A. Conversations, UI~:;CLISS:IO'lS Calls You should avoid projects, even obliquely, with other investment bankers, lawyers, or other members of the financial community or with friends or former classmates at social occasions.
You should avoid talking about transactions or exposing confidential information in public - airplanes, airports, elevators (including those at 85 Broad), cabs, subways, trains or outside offices - where non-team members could overhear the conversation or see any material. Mobile telephones (car, airplane, and personal) use the public airwaves, are not secure and should be used with care and circumspection.
Unless you have been specifically authorized to respond to press inquiries, you should refer such calls to your or Group Head, the Media Relations Group, or the Legal Department.
In the event that you believe that a call is from an arbitrageur or other trader at another you should not take or return the call.
You should establish with clients whether it is to mention that you are from Goldman Sachs when speaking to their and other diSinterested personnel. You should avoid leaving client names or other confidential information on answering machines.
The whereabouts of any division member should not be disclosed over the telephone to anyone outside ISD who is not authorized to receive such information. M[~,S~~;~:~~t should be taken so that calls can be returned without revealing locations. In Situations, the caller should be assured that the team member will be contacted immediately and asked to return the call.
Documents memoranda, comparisons, stock histories, merger plans, computer merger sheets and other information generated internally by the Firm with to sensitive projects should refer to the companies by their code names.
Pink sheets are used in M&A to notify ISD personnel worldwide about seller prc)je(:ts. The information in pink sheets is confidential and must not be discussed with anyone outside IBD who is not authorized to receive such information. Pink sheets should include the code name or client name, never both. Pink sheets are approved the chiefs of staff of M&A in New York, London and Tokyo and are distributed to IBD personnel.
As a general rule, you should not put names of projects or companies (including code names) on the outside front cover of brochures and, unless the matter clearly
....... .............................................. .................. - .. -.--------------=:---~ October 2007 9
DCNTI~\I
IBD
involves no confidential questions, do not use clear covers on brochures, If you are in use blue covers without logo on brochures,
All IBD personnel should ensure that material regarding specific transactions and particularly confidential information is not left in common or public areas
those on their working floor or left exposed overnight on secretaries' desks or in work rooms. Managing Directors and vice should lock their office doors when they leave for the evening or are absent from the office. Associates and analysts should secure sensitive documents in locked filing cabinets
to leaving the office.
Conference rooms and all work areas should be cleared of all information including information on whiteboards and flip charts after each meeting or work session. If a conference room or work room is needed for more than one day, the room should be locked when not in use and a sign the use of the room by others until it is clear of all material relating to the meeting or work session.
Care should be taken when disposing of confidential material. It should be disposed of in sealed envelopes or, if available, in locked trash receptacles or by shredding. See Section 2,03 Treatment of Confidential Information,
If you give copies of confidential material to team members in other it Is your responsibility to clearly communicate the confidential nature of the materials to the and ensure that the materials are collected or, if permitted by law, destroyed.
Confidential material should not be taken out of the building unless required for business meetings or for work at home. Material taken outside the office should be carried in a secure briefcase or a well sealed envelope, and precautions should be taken against inadvertently misplacing it or leaving it behind. For example, you should search conference rooms in other airports, airplanes, hotel rooms and cabs in which you have worked to a make certain nothing has been left behind.
Documents or correspondence relating to IBD should be mailed in sealed envelopes marked Personal and Confidential, Sealed that indicate If they have been opened are available for that purpose. Use double when sending packages by overnight couriers. Whenever sensitive documents are sent by car or messenger service to a non-business address or sent after hours, care should be taken to ensure that the documents are delivered safely, Before sending documents out, you should make sure that the recipients are actually present to receive the documents or that a doorman or similar person will safeguard them,
After faxing confidential documents to other Goldman Sachs floors, offices or to clients, the addressee should be called to confirm of the falt,
lAJ'UllJUllt:lf Security
The is a repository for an enormous amount of information obtained in confidence from our clients, Accessing this information without proper consideration of the potential conflicts of interest is a violation of the spirit and in
cases the letter of the with our clients and can expose us to legal
You should not give your password to our computer to anyone for any reason, Furthermore, you should exercise caution in the selection of your password,
Page 10
CONFIDENTIAL VV!\fvil ,J BKEX!\tv1-GS -000 ~~J,~
IBD Chinese Wall Bulletin
as birthdays, words, or names may not provide Persons needing access to a computer should be referred to a computer professional who can open an account for them, In general, project information stored on the computer should be accessed only by team members, Files should not be sent to on other floors or in regional offices unless the person who needs them is authorized to have PO:SSE!ssion of the documents and is actually there to pick them up, Copies that may have been created during the transfer should be deleted,
The following procedures are intended to ensure that sufficient discussion occurs before confidential documents,
• Discuss which documents you need and for what purpose with a senior team member on the project,
• Contact a partner or chief of staff in your IBD group or department and be prepared to address whether your access any possible conflicts of interest; and whether there might be any problem with logging your access,
D, Entrance doors leading from the area to all IBD Floors will be locked at all times and require IBD access cards, Propping of entrance doors will autom,ltilcal alert Goldman Sachs security, Persons without IBD access cards wishing to enter a floor during the day should present their Goldman Sachs ID card to the receptionist or security guard, Persons without a Goldman Sachs ID card are required to sign in and be escorted onto the floor by a staff member, As a general matter, the only persons who may enter a division floor without an escort are personnel there on a need to be there basis,
It is the responsibility of all IBD staff members to stop any walking around the floor, to ask them for whom they are looking and escort them to their destination, No one should be allowed to wander around,
Client and other non-Goldman Sachs personnel (including workmen) should be asked to wear a Guest or Visitor badge at all times,
Non-Goldman Sachs messengers and delivery persons should be met at the reception area; such persons should not be access to the floor,
11
FiDn.J fiAt "; -,
Exhibit 17
The Honorable Sheila C. Bair
Richard M. 1(o1l1{t!lIlch Chai rman
September 24, 2008
Chainnan, Federal Deposit Insurance Corporation 550 1711> Street NW Washington, D.C. 20429
Dear Madam Chninnnn:
420 Montgomery Street San Frlncisco. CA 94104
I wanted to follow up on your recent conversations with John Stumpf and to thank you for the opportunity to submit a bid for Washington Mutual Bank in the event the FDIC is appointed receiver of Washington Mutual and Washington Mutual is resolved in n closed bank transaction. Senior execulives of Wells Fargo, as well as senior staff and advisors, have at yoW' invitation met with representatives of the FDIC and have been working ditigently on an analysis of Washington Mutual and have considered carefully various bid structures. As you know, in addition, Washington Mutual has, with a view to negotiating a possible negotiated transaction, afforded Wells Fargo a limited opportunity, on a very shon time frame, to conduct due diligence on Washington Mutual.
Our team has reviewed the limited information provided to us by Washington Mutual, as well as the structure alternatives preser.led to us by FDIC staff. Unfortunately, we believe that, in view of the bid structures and alternatives presented to us, combined with the limited due diligence afforded to us, the severe time constraints, the extreme uncertainty associated with potential losses to Washington Mutual's loan portfolio, interest rate sensitivity, and the pressures created by this process on market values that could result in a fire sale disposition of Washington Mutual 's troubled assets, it would be extremely imprudent ofWelJs Fargo and detrimental to its stockholders to submit a bid based on any of the structures presented and without the opponunity to conduct appropriate due diligence. In addition, we believe that any bid Wells Fargo would submit on this basis would neither be in the best interests of the FDIC nor result in the least costly effect on the Federal Deposit Insurance Fund .
Specifically, we believe the loss exposure in the current environment is so great that the only bid we could make would be a negative premium in an amount that would el iminate a substantial portion of the FDIC's remaining assets, or to require substantial loss sharing protection from the FDIC in an amount and under tenos that would expose the FDIC to the same cost over time as a negative bid. Any loss sharing agreement, in our view, would need to include not only protection against direct credit costs but also protection against asset disposition costs. Although we cannot speak to what other potential bidders would conclude, we reasonably expect that any bid from a prudent bank would similarly contain a negative premium or a substantial loss sharing arrangement and frankly, if it didn't, the FDIC should be very concerned about the risks being assumed by the bidding instirution in terms of thaI institution's safety and soundness and potential exposure to the FDIC.
Confidential WF-Examiner16862
The Honornble Sheila C. Bair September 24, 2008 Page Two
We do believe that we are capable of proposing a bid structure that would both provide reasonable protection to Wells Fargo and its stockholders, as well as protect and minimize any charge against thc Federal Deposit Insurance Fund. The structure we would be willing to propose and that could serve as a basis for a bid in the event Washington Mutual is placed in a receivership or conservatorship would contain the following features:
• Wells Fargo would assume all deposit liabilities (both insured and uninsured) for a premium to be specified in the bid that would be the best premium we could offer.
• All other liabilities would be initially assumed by the FD IC. Wells Fargo, however, would be granted up to 60 days in which to conduct due diligence on Washington Mutual and to decide which liabilities associated with or necessary for the operations of the franchise, such as ex.ecutory contracts, lease obl igations certain employee liabilities, and liabilities associated with assets to be acquired by Wells Fargo, Wells Fargo would be willing to assume.
• In addition to non-deposit liabilities, all assets would initially be retained by the FDIC. During the 60 day period mentioned above, Wells Fargo would also conduct due dIligence and decide which assets of Washington Mutual Wells Fargo would be will ing to acquire. Based on the limited due diligence conducted by Wells Fargo to date we estimate that Wells Fargo would be interested in acquiring assets representing between 550B ·51008 of Washington Mutual's balance sheet.
• All assets not acquired by Wells Fargo would be retained by the FDIC. In order to max.imize recoveries for the FDIC and dispose of the assets in an orderly manner, Wells Fargo and the FDIC would enter into an asset management agreement containing appropriate incentives for Wells Fargo to achieve those goals and under which Wens Fargo, as the agent for the benefit of the FDIC, would manage and dispose ofthosc assets at cost.
We believe that 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 ofWnshington Mutual's assets and effect a resolution measured in tenns of expenditures (long and short tenn and direct and contingent) in the manner tht least costly to the FDIC when compared with other alternatives. lfthe FDIC is interested in discussing this proposal further, please contact me or JaM Stumpf.
Thank you again for providing this opportunity to Wells Fargo.
Sincerely,
Richard M. Kovacevich Chairman
Confidential WF-Examiner16863
Exhibit 17
The Honorable Sheila C. Bair
Richard M. 1(o1l1{t!lIlch Chai rman
September 24, 2008
Chainnan, Federal Deposit Insurance Corporation 550 1711> Street NW Washington, D.C. 20429
Dear Madam Chninnnn:
420 Montgomery Street San Frlncisco. CA 94104
I wanted to follow up on your recent conversations with John Stumpf and to thank you for the opportunity to submit a bid for Washington Mutual Bank in the event the FDIC is appointed receiver of Washington Mutual and Washington Mutual is resolved in n closed bank transaction. Senior execulives of Wells Fargo, as well as senior staff and advisors, have at yoW' invitation met with representatives of the FDIC and have been working ditigently on an analysis of Washington Mutual and have considered carefully various bid structures. As you know, in addition, Washington Mutual has, with a view to negotiating a possible negotiated transaction, afforded Wells Fargo a limited opportunity, on a very shon time frame, to conduct due diligence on Washington Mutual.
Our team has reviewed the limited information provided to us by Washington Mutual, as well as the structure alternatives preser.led to us by FDIC staff. Unfortunately, we believe that, in view of the bid structures and alternatives presented to us, combined with the limited due diligence afforded to us, the severe time constraints, the extreme uncertainty associated with potential losses to Washington Mutual's loan portfolio, interest rate sensitivity, and the pressures created by this process on market values that could result in a fire sale disposition of Washington Mutual 's troubled assets, it would be extremely imprudent ofWelJs Fargo and detrimental to its stockholders to submit a bid based on any of the structures presented and without the opponunity to conduct appropriate due diligence. In addition, we believe that any bid Wells Fargo would submit on this basis would neither be in the best interests of the FDIC nor result in the least costly effect on the Federal Deposit Insurance Fund .
Specifically, we believe the loss exposure in the current environment is so great that the only bid we could make would be a negative premium in an amount that would el iminate a substantial portion of the FDIC's remaining assets, or to require substantial loss sharing protection from the FDIC in an amount and under tenos that would expose the FDIC to the same cost over time as a negative bid. Any loss sharing agreement, in our view, would need to include not only protection against direct credit costs but also protection against asset disposition costs. Although we cannot speak to what other potential bidders would conclude, we reasonably expect that any bid from a prudent bank would similarly contain a negative premium or a substantial loss sharing arrangement and frankly, if it didn't, the FDIC should be very concerned about the risks being assumed by the bidding instirution in terms of thaI institution's safety and soundness and potential exposure to the FDIC.
Confidential WF-Examiner16862
The Honornble Sheila C. Bair September 24, 2008 Page Two
We do believe that we are capable of proposing a bid structure that would both provide reasonable protection to Wells Fargo and its stockholders, as well as protect and minimize any charge against thc Federal Deposit Insurance Fund. The structure we would be willing to propose and that could serve as a basis for a bid in the event Washington Mutual is placed in a receivership or conservatorship would contain the following features:
• Wells Fargo would assume all deposit liabilities (both insured and uninsured) for a premium to be specified in the bid that would be the best premium we could offer.
• All other liabilities would be initially assumed by the FD IC. Wells Fargo, however, would be granted up to 60 days in which to conduct due diligence on Washington Mutual and to decide which liabilities associated with or necessary for the operations of the franchise, such as ex.ecutory contracts, lease obl igations certain employee liabilities, and liabilities associated with assets to be acquired by Wells Fargo, Wells Fargo would be willing to assume.
• In addition to non-deposit liabilities, all assets would initially be retained by the FDIC. During the 60 day period mentioned above, Wells Fargo would also conduct due dIligence and decide which assets of Washington Mutual Wells Fargo would be will ing to acquire. Based on the limited due diligence conducted by Wells Fargo to date we estimate that Wells Fargo would be interested in acquiring assets representing between 550B ·51008 of Washington Mutual's balance sheet.
• All assets not acquired by Wells Fargo would be retained by the FDIC. In order to max.imize recoveries for the FDIC and dispose of the assets in an orderly manner, Wells Fargo and the FDIC would enter into an asset management agreement containing appropriate incentives for Wells Fargo to achieve those goals and under which Wens Fargo, as the agent for the benefit of the FDIC, would manage and dispose ofthosc assets at cost.
We believe that 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 ofWnshington Mutual's assets and effect a resolution measured in tenns of expenditures (long and short tenn and direct and contingent) in the manner tht least costly to the FDIC when compared with other alternatives. lfthe FDIC is interested in discussing this proposal further, please contact me or JaM Stumpf.
Thank you again for providing this opportunity to Wells Fargo.
Sincerely,
Richard M. Kovacevich Chairman
Confidential WF-Examiner16863
Exhibit 17
The Honorable Sheila C. Bair
Richard M. 1(o1l1{t!lIlch Chai rman
September 24, 2008
Chainnan, Federal Deposit Insurance Corporation 550 1711> Street NW Washington, D.C. 20429
Dear Madam Chninnnn:
420 Montgomery Street San Frlncisco. CA 94104
I wanted to follow up on your recent conversations with John Stumpf and to thank you for the opportunity to submit a bid for Washington Mutual Bank in the event the FDIC is appointed receiver of Washington Mutual and Washington Mutual is resolved in n closed bank transaction. Senior execulives of Wells Fargo, as well as senior staff and advisors, have at yoW' invitation met with representatives of the FDIC and have been working ditigently on an analysis of Washington Mutual and have considered carefully various bid structures. As you know, in addition, Washington Mutual has, with a view to negotiating a possible negotiated transaction, afforded Wells Fargo a limited opportunity, on a very shon time frame, to conduct due diligence on Washington Mutual.
Our team has reviewed the limited information provided to us by Washington Mutual, as well as the structure alternatives preser.led to us by FDIC staff. Unfortunately, we believe that, in view of the bid structures and alternatives presented to us, combined with the limited due diligence afforded to us, the severe time constraints, the extreme uncertainty associated with potential losses to Washington Mutual's loan portfolio, interest rate sensitivity, and the pressures created by this process on market values that could result in a fire sale disposition of Washington Mutual 's troubled assets, it would be extremely imprudent ofWelJs Fargo and detrimental to its stockholders to submit a bid based on any of the structures presented and without the opponunity to conduct appropriate due diligence. In addition, we believe that any bid Wells Fargo would submit on this basis would neither be in the best interests of the FDIC nor result in the least costly effect on the Federal Deposit Insurance Fund .
Specifically, we believe the loss exposure in the current environment is so great that the only bid we could make would be a negative premium in an amount that would el iminate a substantial portion of the FDIC's remaining assets, or to require substantial loss sharing protection from the FDIC in an amount and under tenos that would expose the FDIC to the same cost over time as a negative bid. Any loss sharing agreement, in our view, would need to include not only protection against direct credit costs but also protection against asset disposition costs. Although we cannot speak to what other potential bidders would conclude, we reasonably expect that any bid from a prudent bank would similarly contain a negative premium or a substantial loss sharing arrangement and frankly, if it didn't, the FDIC should be very concerned about the risks being assumed by the bidding instirution in terms of thaI institution's safety and soundness and potential exposure to the FDIC.
Confidential WF-Examiner16862
The Honornble Sheila C. Bair September 24, 2008 Page Two
We do believe that we are capable of proposing a bid structure that would both provide reasonable protection to Wells Fargo and its stockholders, as well as protect and minimize any charge against thc Federal Deposit Insurance Fund. The structure we would be willing to propose and that could serve as a basis for a bid in the event Washington Mutual is placed in a receivership or conservatorship would contain the following features:
• Wells Fargo would assume all deposit liabilities (both insured and uninsured) for a premium to be specified in the bid that would be the best premium we could offer.
• All other liabilities would be initially assumed by the FD IC. Wells Fargo, however, would be granted up to 60 days in which to conduct due diligence on Washington Mutual and to decide which liabilities associated with or necessary for the operations of the franchise, such as ex.ecutory contracts, lease obl igations certain employee liabilities, and liabilities associated with assets to be acquired by Wells Fargo, Wells Fargo would be willing to assume.
• In addition to non-deposit liabilities, all assets would initially be retained by the FDIC. During the 60 day period mentioned above, Wells Fargo would also conduct due dIligence and decide which assets of Washington Mutual Wells Fargo would be will ing to acquire. Based on the limited due diligence conducted by Wells Fargo to date we estimate that Wells Fargo would be interested in acquiring assets representing between 550B ·51008 of Washington Mutual's balance sheet.
• All assets not acquired by Wells Fargo would be retained by the FDIC. In order to max.imize recoveries for the FDIC and dispose of the assets in an orderly manner, Wells Fargo and the FDIC would enter into an asset management agreement containing appropriate incentives for Wells Fargo to achieve those goals and under which Wens Fargo, as the agent for the benefit of the FDIC, would manage and dispose ofthosc assets at cost.
We believe that 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 ofWnshington Mutual's assets and effect a resolution measured in tenns of expenditures (long and short tenn and direct and contingent) in the manner tht least costly to the FDIC when compared with other alternatives. lfthe FDIC is interested in discussing this proposal further, please contact me or JaM Stumpf.
Thank you again for providing this opportunity to Wells Fargo.
Sincerely,
Richard M. Kovacevich Chairman
Confidential WF-Examiner16863
Wshington Mutual Inc. Daily Cash Flow Projection
A B C D E F G H I J K L M N 0 P Q R S1 1/1/2008 1/2/2008 1/3/2008 1/4/2008 1/5/2008 1/6/2008 1/7/2008 1/8/2008 1/9/2008 1/10/2008 1/11/2008 1/12/2008 1/13/2008 1/14/2008 1/15/2008 1/16/2008 1/17/2008 1/18/2008
2 Tues Wed Th Fri Sat Sun Mon Tues Wed Th Fri Sat Sun Mon Tues Wed Th Fri
A T U V W X Y Z AA AS AC AD AE AF AG1 1/19/2008 1/20/2008 1/21/2008 1/22/2008 1/23/2008 1/24/2008 1/25/2008 1/26/2008 1/27/2008 1/28/2008 1/29/2008 1/30/2008 1/31/2008 Jan 08 Total
2 Sat Sun Mon Tues Wed Thu Fri Sat Sun Mon Tues Wed Thu
Restricted For Use in Connection with Plan Confirmation OnlyHighly Confidential Information WGM 00001912Restricted For Use in Connection with Plan Confirmation Only Hi hi Confidential Information
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Washington Mutual Inc. Daily Cash Flow Projection
A B C D E F G H I J K L M N 0 P Q R S1 2/1/2008 2/2/2008 2/3/2008 2/4/2008 2/5/2008 2/6/2008 2/7/2008 2/8/2008 2/9/2008 2/10/2008 2/11/2008 2/12/2008 2/13/2008 2/14/2008 2/15/2008 2/16/2008 2/17/2008 2/18/2008
2 Fri Sat Sun Mon Tues Wed Thurs Fri Sat Sun Mon Tues Wed Thurs Fri Sat Sun Mon
A T U V W X Y Z AA AS AC AD AE1 2/19/2008 2/20/2008 2/21/2008 2/22/2008 2/23/2008 2/24/2008 2/25/2008 2/26/2008 2/27/2008 2/28/2008 2/29/2008 Feb 05 Total
2 Tues Wed Thurs Fri Sat Sun Mon Tues Wed Thurs Fri
49 Beginning Co2 Cash 3,167,643 3,028,897 3,009,782 2,991,282
50 Net Increasel(Decrease) in Cash (138,746) (19,115) (18,500) (5,484)
51 End" 3,028897 3009782 2991282 2985798
52 53 Beginning Col Cash 0 0 0 0
54 Net Increasel(Decrease) in Cash 0 0 0 0
55 Ending Col Cash 0 0 0 0
56 57 Ending Total Cash 3,028,897 3,009,782 2,991,282 2,985,798
58
X Y Z AA 2/23/2008 2/24/2008 2/25/2008 2/26/2008
Sat Sun Mon Tues
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 (5.595) 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 (11.000) 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 (16.595) 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 1.938.6l0 0 0 0 0
0 0 0 (I.938.6l0) 0 0 28.247 (5.118)
0 0 28.247 (5.118)
0 0 0 0
0 0 0 0
0 0 0 0
2,985,798 2,985,798 2,985,798 2,997,451
0 0 11,653 (5,118)
2985798 2985798 2997451 2992 333
0 0 0 0
0 0 0 0
0 0 0 0
2,985,798 2,985,798 2,997,451 2,992,333
AB AC AD 2/27/2008 2/28/2008 2/29/2008
Wed Thurs Fri
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 12.773
(15.161) 11.169 3.254
(15.161) 11.169 16.027
0 0 0
0 0 0
0 0 0
2,992,333 2,977,172 2,988,341
(15,161) 11,169 16,027
2977172 2988341 3004367
0 0 0
0 0 0
0 0 0
2,977,172 2,988,341 3,004,367
AE Feb 05 Total
0
0
0
(129.798)
0
0
0
0
0
0
0
0
0
0
(5.595)
0
0
0
(11.000)
0
0
0
0
0
0
0
0
(15.453)
(161.846)
0
0
0
0
0
1.938.610
0
(1.925.307)
(36.707)
(23.404)
0
(299,832)
(299,832)
3,489,450
(485,083)
3004,367
0
0
0
3,004,367
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Washington Mutual Inc. Daily Cash Flow Projection
Cell: AA40 Comment: Doreen Logan:
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Washington Mutual Inc. Daily Cash Flow Projection
A B C D E F G H I J K L M N 0 P Q R S1 3/1/2008 3/2/2008 3/3/2008 3/4/2008 3/5/2008 3/6/2008 3/7/2008 3/8/2008 3/9/2008 3/10/2008 3/11/2008 3/12/2008 3/13/2008 3/14/2008 3/15/2008 3/16/2008 3/17/2008 3/18/2008
2 Sat Sun Mon Tues Wed Thurs Fri Sat Sun Mon Tues Wed Thurs Fri Sat Sun Mon Tues
A T U V W X Y Z AA AS AC AD AE AF AG1 3/19/2008 3/20/2008 3/21/2008 3/22/2008 3/23/2008 3/24/2008 3/25/2008 3/26/2008 3/27/2008 3/28/2008 3/29/2008 3/30/2008 3/31/2008 Mar 08 Total
2 Wed Thurs Fri Sat Sun Mon Tues Wed Thu Fri Sat Sun Mon
34 Other Operating Activities 35 Long Beach Mortgage 0 0 0 0 0
36 Master Note With NACI 0 0 0 0 0
37 Master Note With Aircraft Holdings 0 0 0 0 0
38 Fundings to WCC 0 0 0 0 0
39 Cash transfer from Co. 1 dda 0 0 0 0 0
40 Tax Receipts 0 0 0 0 0
41 Tax Payments 0 0 0 0 0
42 Intercompany Settlements 0 247 0 0 0
43 All 01l1er 27.763 (24.588) 5.000 0 0
44 Subtotal 27.763 (24.341) 5.000 0 0
45 Financing Activities
46 Commercial Paper Issued (Matured) 0 0 0 0 0
47 Stock Buyback 0 0 0 0 0
48 Subtotal 0 0 0 0 0
49 50 Beginning Co2 Cash 2,848,730 2,876,493 2,598,944 2,603,944 2,603,944
51 Net Increasel(Decrease) in Cash 27,763 (277,549) 5,000 0 0
52 Ending Co2 Cash 2,876,493 2,598,944 2,603,944 2,603,944 2,603,944
53 54 Beginning COl Cash 0 0 0 0 0
55 Net Increasel(Decrease) in Cash 0 0 0 0 0
56 Ending Col Cash 0 0 0 0 0
57 58 Ending Total Cash 2,876,493 2,598,944 2,603,944 2,603,944 2,603,944
Y Z AA AB AC 3/24/2008 3/25/2008 3/26/2008 3/27/2008 3/28/2008
Mon Tues Wed Thu Fri
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 (5.961) 0 0 0
(10.000) 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
(10.000) (5.961) 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 (710) 0 5.265 0
13.865 (451) (44.402) 2.867 0
13.865 (1.161) (44.402) 8.132 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
2,603,944 2,607,809 2,600,686 2,556,284 2,564,416
3,865 (7,123) (44,402) 8,132 0
2,607,809 2,600,686 2,556,284 2,564,416 2,564,416
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
2,607,809 2,600,686 2,556,284 2,564,416 2,564,416
AD AE AF 3/29/2008 3/30/2008 3/31/2008
Sat Sun Mon
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 (40.464)
0 0 (8.029)
0 0 (48.493)
0 0 0
0 0 0
0 0 0
2,564,416 2,564,416 2,564,416
0 0 (48,493)
2,564,416 2,564,416 2,515,923
0 0 0
0 0 0
0 0 0
2,564,416 2,564,416 2,515,923
AG Mar 08 Total
0
0
0
0
(7.192)
(57.479)
0
0
0
0
0
(253.208)
0
0
0
0
(5.961)
(10.000)
(6.813)
0
(19.688)
0
0
0
0
0
(360.341)
0
0
0
0
0
20.543
(170.116)
(36.909)
58.381
(128.103)
0
0
0
3,004,367
(488,444)
2,515,923
0
0
0
2,515,923
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~
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A B C 0 E F G H I J K L M N 0 P Q R S1 4/1/2008 4/2/2008 4/3/2008 4/4/2008 4/5/2008 4/6/2008 4/7/2008 4/8/2008 4/9/2008 4/10/2008 4/11/2008 4/12/2008 4/13/2008 4/14/2008 4/15/2008 4/16/2008 4/17/2008 4/18/2008
2 Tues Wed Thurs Fri Sat Sun Mon Tues Wed Thurs Fri Sat Sun Mon Tues Wed Thurs Fri
K L M N 0 4/10/2008 4/11/2008 4/12/2008 4/13/2008 4/14/2008
Thurs Fri Sat Sun Mon
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
950,600 (950,600) 0 0 117,747
0 0 0 0 0
0 0 0 0 0
0 0 0 0 (330)
(7,611) 0 0 0 0
(11,923) 18,456 0 0 (13,269)
931,066 (932,144) 0 0 104,149
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
2,592,831 3,523,896 2,591,753 2,591,753 2,591,753
931,066 (932,144) 0 0 104,149
3,523,896 2,591,753 2,591,753 2,591,753 2,695,901
0 0 1,030,006 1,030,006 1,030,006
0 1,030,006 0 0 3,782,775
0 1,030,006 1,030,006 1,030,006 4,812,782
3,523,896 3,621,759 3,621,759 3,621,759 7,508,683
0 0 0 0 0
P Q 4/15/2008 4/16/2008
Tues Wed
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
(2,483) 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
(2,483) 0
0 0
0 0
0 0
0 0
0 0
(24,453) (13)
54 0
(1,579) (10,312)
(25,978) (10,325)
0 0
0 0
0 0
2,695,901 2,667,440
(28,461) (10,325)
2,667,440 2,657,116
4,812,782 5,069,355
256,573 13,754
5,069,355 5,083,108
7,736,795 7,740,224
31 31
R 4/17/2008
Thurs
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(117,747)
0
161,777
(6,459)
2,246
(3,452)
36,364
0
0
0
2,657,116
36,364
2,693,480
5,083,108
126,390
5,209,498
7,902,978
31
S 4/18/2008
Fri
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(22,732)
(22,732)
0
0
0
2,693,480
(22,732)
2,670,748
5,209,498
(2,999,548)
2,209,950
4,880,698
31
o C\I (J) ...-o o o o
~
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A T U V W X Y Z AA AS AC AD AE AF1 4/19/2008 4/20/2008 4/21/2008 4/22/2008 4/23/2008 4/24/2008 4/25/2008 4/26/2008 4/27/2008 4/28/2008 4/29/2008 4/30/2008 Apr 08 Total
2 Sat Sun Mon Tues Wed Thurs Fri Sat Sun Mon Tues Wed
53 54 Ending Total Cash 4,880,698 4,880,698 6,807,483 6,808,127 6,813,153
55 56 57 CP Outstanding 31 31 31 31 31
58
Y Z AA AB AC 4/24/2008 4/25/2008 4/26/2008 4/27/2008 4/28/2008
Thurs Fri Sat Sun Mon
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
(1,020) 0 0 0 (21,900)
(890) (450) 0 0 (15,923)
(1,910) (450) 0 0 (37,823)
0 0 0 0 0
0 (37,083) 0 0 (4,525)
0 (37,083) 0 0 (4,525)
2,663,203 2,661,293 2,623,760 2,623,760 2,623,760
(1,910) (37,533) 0 0 (42,348)
2,661,293 2,623,760 2,623,760 2,623,760 2,581,412
4,149,950 4,149,950 4,149,950 4,149,950 4,149,950
0 0 0 0 0
4,149,950 4,149,950 4,149,950 4,149,950 4,149,950
6,811,243 6,773,710 6,773,710 6,773,710 6,731,362
31 31 31 31 31
AD AE 4/29/2008 4/30/2008
Tues Wed
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 4,149,950
0 0
0 0
0 0
20,000 15,134
(3,152) 6,128
16,848 4,171,212
0 0
(12,672) 0
(12,672) 0
2,581,412 2,585,589
4,176 4,171,212
2,585,589 6,756,800
4,149,950 4,149,950
0 (4,149,950)
4,149,950 0
6,735,539 6,756,800
31 35
AF Allr08 Total
0
0
0
0
0
0
0
0
0
0
(2,483)
(18,775)
0
0
0
(17,344)
0
0
0
0
0
0
(38,602)
0
0
4,149,950
0
286,777
(31,255)
(23,103)
(48,609)
4,333,759
0
(54,280)
(54,280)
2,515,923
4,240,877
6,756,800
0
0
0
6,756,800
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A B C 0 E F G H I J K L M N 0 P Q R S1 4/1/2008 4/2/2008 4/3/2008 4/4/2008 4/5/2008 4/6/2008 4/7/2008 4/8/2008 4/9/2008 4/10/2008 4/11/2008 4/12/2008 4/13/2008 4/14/2008 4/15/2008 4/16/2008 4/17/2008 4/18/2008
2 Tues Wed Thurs Fri Sat Sun Mon Tues Wed Thurs Fri Sat Sun Mon Tues Wed Thurs Fri
K L M N 0 4/10/2008 4/11/2008 4/12/2008 4/13/2008 4/14/2008
Thurs Fri Sat Sun Mon #REFI #REFI #REFI #REFI #REF!
P Q 4/15/2008 4/16/2008
Tues Wed #REFI #REFI
R 4/17/2008
Thurs #REFI
S 4/18/2008
Fri
#REF!
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A T U V W X Y Z AA AS AC AD AE AF1 4/19/2008 4/20/2008 4/21/2008 4/22/2008 4/23/2008 4/24/2008 4/25/2008 4/26/2008 4/27/2008 4/28/2008 4/29/2008 4/30/2008 Apr 08 Total
2 Sat Sun Mon Tues Wed Thurs Fri Sat Sun Mon Tues Wed
Z AA AB AC 4/25/2008 4/26/2008 4/27/2008 4/28/2008
Fri Sat Sun Mon #REFI #REFI #REFI #REFI
AD AE 4/29/2008 4/30/2008
Tues Wed #REFI #REF!
AF Allr08 Total
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Cell: A50 Comment: Doreen Logan:
Bank account opened solely for the TPG/Olympic Group funds inflow
Cell: 551 Comment: Doreen Logan:
Capital Contribution to WMB and various receipts from Olympic Group (TPG )
-.::t N (J') ...-o o o o
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A B C D E F G H I J K L M N 0 P Q R S T1 5/112008 5/2/2008 5/3/2008 5/4/2008 5/5/2008 5/6/2008 51712008 5/8/2008 5/9/2008 5/10/2008 5/1112008 5/12/2008 5/1312008 5/14/2008 5/15/2008 5/16/2008 5/17/2008 5/18/2008 5/19/2008
2 Thurs Fri Sat Sun Mon Tues Wed Thurs Fri Sat Sun Mon Tues Wed Thurs Fri Sat Sun Mon
0-0 LL;,;:::::: -oc 0)0 nO ·c >...... ..c 000) 0).-D:::I
A U v W x y Z AA AS AC AD AE AF AG1 5/20/2008 5/2112008 5/22/2008 5/23/2008 5/24/2008 5/25/2008 5/26/2008 5/27/2008 5/28/2008 5/29/2008 5/30/2008 5/3112008 May 08 Total
2 Tues Wed Thurs Fri Sat Sun Mon Tne Wed Thurs Fri Sat
42 43 Beginning Co2 Cash 6,583,501 6,513,659 6,515,659 6,515,571 6,508,995
44 Net Increase/(Decrease) in Cash (69,842) 2,000 (88) (6,576) 0
40 Ending Co2 Cash 6,513,659 6,515,659 6,515,571 6,508,995 6,508,995
46 47 Beginning Col Cash 0 0 0 0 0
48 Net Increase/(Decrease) in Cash 0 0 0 0 0
4!,l Ending Col Cash 0 0 0 0 0
50 51 Ending Total Cash 6,513,659 6,515,659 6,515,571 6,508,995 6,508,995
52 53 54 CP Outstanding 0 0 0 0 0
55
Z AA AS AC 5/25/2008 5/26/2008 5/27/2008 5/28/2008
Sun Mon Tue Wed
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
(3,457)
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 (3,457) 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 1 0
0 0 (704) 5,459
0 0 (703) 5,459
0 0 0 0
0 0 (37,975) (18,805)
0 0 (37,975) (18,805)
6,508,995 6,508,995 6,508,995 6,466,860
0 0 (42,135) (13,346)
6,508,995 6,508,995 6,466,860 6,453,514
0 0 0 0
0 0 0 0
0 0 0 0
6,508,995 6,508,995 6,466,860 6,453,514
0 0 0 0
AD AE AF 5/29/2008 5/30/2008 5/3112008
Thurs Fri Sal
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 (120,815) 0
(8,294) (91,664) 0
(8,294) (212,479) 0
0 0 0
0 (98,726) 0
0 (98,726) 0
6,453,514 6,445,220 6,134,014
(8,294) (311,205) 0
6,445,220 6,134,014 6,134,014
0 0
0 0 0
0 0 0
6,445,220 6,134,014 6,134,014
0 0 0
AG May 08 Total
0
0
0
0
(10,435)
(6,465)
0
0
0
0
0
0
0
0
0
(18,125)
0
(15,453)
(53,935)
0
0
0
0
0
0
(2,065)
(170,540)
(49,487)
(222,092)
0
(346,759)
(346,759)
6,756,800
(622,786)
6,134,014
0
0
0
6,134,014
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0-0 LL;,;:::::: -oc 0)0 nO ·c >...... ..c 000) 0).-D:::I
Washington Mutual Inc. Cash Forecast
A B C 0 E F G H I J K L M N 0 P Q1 6/1/2008 6/2/2008 6/3/2008 6/4/2008 6/5/2008 6/6/2008 6/7/2008 6/8/2008 6/9/2008 6/10/2008 6/11/2008 6/12/2008 6/13/2008 6/14/2008 6/15/2008 6/16/2008
2 Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun Mon
A R S T U V W X Y Z AA AS AC AD AE AF1 6/17/2008 6/18/2008 6/19/2008 6/20/2008 6/21/2008 6/22/2008 6/23/2008 6/24/2008 6/25/2008 6/26/2008 6/27/2008 6/28/2008 6/29/2008 6/30/2008 Jun 08 Total
2 Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun Mon
A B C 0 E F G H I J K L M N 0 P Q1 7/1/2008 7/2/2008 7/3/2008 7/4/2008 7/5/2008 7/6/2008 7/7/2008 7/8/2008 7/9/2008 7/10/2008 7/11/2008 7/12/2008 7/13/2008 7/14/2008 7/15/2008 7/16/2008
2 Tues Wed Thu Fri Sat Sun Mon Tues Wed Thu Fri Sat Sun Mon Tues Wed
A R S T U V W X Y Z AA AS AC AD AE AF AG1 7/17/2008 7/18/2008 7/19/2008 7/20/2008 7/21/2008 7/22/2008 7/23/2008 7/24/2008 7/25/2008 7/26/2008 7/27/2008 7/28/2008 7/29/2008 7/30/2008 7/31/2008 July 08 Total
2 Thu Fri Sat Sun Mon Tues Wed Thu Fri Sat Sun Mon Tues Wed Thu
A B C 0 E F G H I J K L M N 0 P Q1 8/1/2008 8/2/2008 8/3/2008 8/4/2008 8/5/2008 8/6/2008 8/7/2008 8/8/2008 8/9/2008 8/10/2008 8/11/2008 8/12/2008 8/13/2008 8/14/2008 8/15/2008 8/16/2008
2 Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat
A R S T U V W X Y Z AA AS AC AD AE AF AG1 8/17/2008 8/18/2008 8/19/2008 8/20/2008 8/21/2008 8/22/2008 8/23/2008 8/24/2008 8/25/2008 8/26/2008 8/27/2008 8/28/2008 8/29/2008 8/30/2008 8/31/2008 Aug 08 Total
2 Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun
A B C 0 E F G H I J K L M N 0 P Q1 9/1/2008 9/2/2008 9/3/2008 9/4/2008 9/5/2008 9/6/2008 9/7/2008 9/8/2008 9/9/2008 9/10/2008 9/11/2008 9/12/2008 9/13/2008 9/14/2008 9/15/2008 9/16/2008
2 Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue
H I J K L 9/7/2008 9/8/2008 9/9/2008 9/10/2008 9/11/2008
Sun Mon Tue Wed TIm
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0 0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0 0 0 0 0 0
0 0 0 0 0
0 0 0 0 0 0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 (70) 0 0 0 0 (3) (500.000) (786)
0 0 0 167 (167)
0 0 (73) (499.833) (953)
0 0 0 0 0
0 0 0 0 0
4.541.751 4.541.751 4.541.751 4.541.678 4.041.846
0 0 (73) (499.833) (953)
4,541,751 4,541,751 4,541,678 4,041,846 4,040,892
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
4,541,751 4,541,751 4,541,678 4,041,846 4,040,892
M N 0 9/12/2008 9/13/2008 9/14/2008
Fri Sat Sun
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0 0 0 0
0 0 0
0 0 0
0 0 0
0 0 0 0 0 0
0 0 0
0 0 0 0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0 318 0 0
5.266 0 0
5.585 0 0
0 0 0
0 0 0
4.040.892 4.046.477 4.046.477 5.585 0 0
4,046,477 4,046,477 4,046,477
0 0 0
0 0 0
0 0 0
4,046,477 4,046,477 4,046,477
P 9/15/2008
Mon
0
0
(5.056)
(59.417)
0
0
0 0
0
0
0
0 0
(19.169)
0 0
0
(83.641)
0
0
0
0
0
0
(265.808) 0
849
(264.959)
0
0
4.046.477 (348.600)
3,697,877
0
0
0
3,697,877
Q 9/16/2008
Tue
0
0
0
0
0 0
0
0
0
0 0
0
0 0
0
0
0
0
0
0
0
0
0 0
0
0
0
0
3.697.877 0
3,697,877
0
0
0
3,697,877
('I') ('I') (J) ...-o o o o
~
~ I
Washington Mutual Inc. Cash Forecast
A R S T U V W X Y Z AA AS AC AD AE AF1 9/17/2008 9/18/2008 9/19/2008 9/20/2008 9/21/2008 9/22/2008 9/23/2008 9/24/2008 9/25/2008 9/26/2008 9/27/2008 9/28/2008 9/29/2008 9/30/2008 Sept 08 Total
2 Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue
A B C 0 E F G H I J K L M N 0 P Q R1 10/1/2008 10/2/2008 10/3/2008 10/4/2008 10/5/2008 10/6/2008 10/7/2008 10/8/2008 10/9/2008 10/10/2008 10/11/2008 10/12/2008 10/13/2008 10/14/2008 10/15/2008 10/16/2008 10/17/2008
2 Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri
A S T U V W X Y Z AA AS AC AD AE AF AG1 10/18/2008 10/19/2008 10/20/2008 10/21/2008 10/22/2008 10/23/2008 10/24/2008 10/25/2008 10/26/2008 10/27/2008 10/28/2008 10/29/2008 10/30/2008 10/31/2008 Oct 08 Total
2 Sat Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri
40 41 Beginning Co2 Cash 266.337 266.337 266.337 266.337 266.337
42 Net Increasel(Decrease) in Cash 0 0 0 0 0 43 Ending Co2 Cash 266,337 266,337 266,337 266,337 266,337
44 45 CP Outstanding 0 0 0 0 0
46 47 48 49 50 51 52 53 54 55
X Y Z AA AB 10/23/2008 10/24/2008 10/25/2008 10/26/2008 10/27/2008
Thu Fri Sat Sun MOD
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
266.337 266.337 266.337 266.337 266.337
0 0 0 0 0 266,337 266,337 266,337 266,337 266,337
0 0 0 0 0
AC AD AE 10/28/2008 10/29/2008 10/30/2008
Tue Wed Thu
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
266.337 266.337 266.337
0 0 0 266,337 266,337 266,337
0 0 0
AF 10/31/2008
Fri
266.337
0 266,337
AG Dct08 Total
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2.270
2.270
0
0
0
266.337
2.270 268,607
0
co ('I') (J) ...-o o o o
~
~ I
Washington Mutual Inc. Cash Forecast
A B C 0 E F G H I J K L M N 0 P Q1 11/1/2008 11/2/2008 11/3/2008 11/4/2008 11/5/2008 11/6/2008 11/7/2008 11/8/2008 11/9/2008 11/10/2008 11/11/2008 11/12/2008 11/13/2008 11/14/2008 11/15/2008 11/16/20082 Sat Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun
A R S T U V W X Y Z AA AS AC AD AE AF1 11/17/2008 11/18/2008 11/19/2008 11/20/2008 11/21/2008 11/22/2008 11/23/2008 11/24/2008 11/25/2008 11/26/2008 11/27/2008 11/28/2008 11/29/2008 11/30/2008 Nov 08 Total2 Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun
A B C 0 E F G H I J K L M N 0 P Q1 12/1/2008 12/2/2008 12/3/2008 12/4/2008 12/5/2008 12/6/2008 12/7/2008 12/8/2008 12/9/2008 12/10/2008 12/11/2008 12/12/2008 12/13/2008 12/14/2008 12/15/2008 12/16/2008
2 Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue
A R S T U V W X Y Z AA AS AC AD AE AF AG1 12/17/2008 12/18/2008 12/19/2008 12/20/2008 12/21/2008 12/22/2008 12/23/2008 12/24/2008 12/25/2008 12/26/2008 12/27/2008 12/28/2008 12/29/2008 12/30/2008 12/31/2008 Dec 08 Total
2 Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed
2,114.58 WIRETRANSFERDEPOSIT1.529,366.86 WIRE TRANSFER DEPOSIT
158,165.00 WIRE TRANSFER DEPOSIT3,375.34 WIRE TRANSFER DEPOSIT
101.42 WIRETRANSFERDEPOSIT576,481.98 WIRE TRANSfER DEPOSIT
8,333.33 BOOK TRANSfER CREDITS2.2n.93B.51
I Account Activity Summary I'A"'V--il-:::rag:-:-:-il--;C;;:O"II-:-ecl-;-ed"'-'::B~al"'a""nce------"'$n:26;;;5;;-,7;;;9~5:-:;,O;-;3;;;9:-=;.O~9~=~L...::~M~in~im?u~m"'D:;-a--:;i1:-y-;:En~di;-n-g";:Ba:-;-lan-c-e---$'"'2::-'64'"'""",O'""6"'8--:,1:-=8-=6.:-=0-=-5Checks Deposited 0 Cash Deposited $0.00Number of Deposits 7 Cash Purchased $0.00Checks/Debits 0
Your Overdrart L1mil as of the statemenl end dale: $1,000.00Please note that this may be changed at any time without notice. ('.Iiew back of statement for more information.)
Page 1 of 1
))
1782
a EM-S-B3
NNGR 001 01 31 103 lOB PAGE 1 af 1
Deposits are FDIC Insured
CllLR1321l 1321 3200 0110101782
@....-l£}jOE~
Restricted For Use in Connection with Plan Confirmation OnlyHighly Confidential - Attorneys Eyes Only Restricted to EC
WGM 00008399
) )
) )
WaMu
1182
P.O. BOX 2395 CHATSWORm, CA 91313·2395
WASHINGTON MUTUAL INC
This Statement Covers From: 10101/08
10/31/08
A TIN: TREASURY ACCTGlLULU ST JO HN or 1IIs1! us at wamu.oom
13012ND AVE#WMC1411 SEAmEWA 96101-2005
WASHINGTON MUTUAL INC Account Number: 179·165066·7 WashIngton Mutual Bank, FA
Your Overdraft Limit as or the statement end date: $1.000.00Please note that thi~may be c;hanged at any lime without notiC6. (View baGK of :;la/ement fOf mOnt informtilion.)
19,168,BOO.00 DOMESTIC OUTGOING WIRE 238,489,257.00 BOOK
27,318,823.00 3.669,654.36 DOMESTIC OUTGOING WIRE
797,072.50 BOOK TRAN SFER DEBIT 17,205,753.61 MISCB..LAN EO Os DEBIT
398.65 BOOK TRAN SFER DEBIT 5,000.00 BOOK TRANSFER DEBIT
270,104,885.03 DOMESTIC OUTGOING WIRE 999,999,999.00 MISCB..l.ANEOUSDEBIT 999,999,999.00 M ISCElLAN EOUS DEBIT 999,999,999.00 MISCELlANEOUSDEBIT 674.000,003.00 M ISICELLAN EO US DEBIT
Your Overdraft Umlt as of the statement end date: $1,000.00Please note that this may be changed Bt eny time wilhout notice. CtIlow back o( statement for moro informalfon.)
Notice of Change In Terms
Bfecllve October 1, 2008, the address for deposits (other than deposit contributions to a R:!tlrement or CoverdeJl EducationSavings Account) and payments for any Business Overdraft Una of Credit sent by maills P.O. Box 659588, san Antonio, 1)(
78265-9588. Use of any other address can resullin loss or delayed processing.
Restricted For Use in Connection with Plan Confirmation OnlyHighly Confidential - Attorneys Eyes Only Restricted to EC
WGM 00008403
)
WaMu
H82
Balance Checks Number of Deposits Checks/Debits
This Statement Covers Account Number: 179·165066-7
From: 09/01/08 09/30/0B
$4,221,989.49 $0.00 $0.00
Your Overdraft Umllll5 of the stalement end dale: $1,000.00 Please note that this may be changed at ony time without notice. !VIew back of statement for more information.)
Notice of Change In Terms
8fective October 1, 2008, tho address for than contributions to a retirement or Coverdell Education Savings Account) and any Business Una of Credit sent maills P.O. Box 659588, San Antonio, 1)(
78265-9588. Use of any other address can resull in loss or delayed processing.
DOMESTIC OUTGOING WIRE PC INITIATED OUTGOING WIRE PC INIllATED OUTGOING WIRE PC INITIATED OUTGOING WIRE PC INIllATED OUTGOING WIRE PC INIllATED OUTGOING WIRE MISCELLANEOUS DEBIT MISCELLANEOUS DEBIT
INI11A lED OUTGOING WIRE PC INITIATED OUTGOING WIRE DOMESTIC OUTGOING WIRE . BOOK TRANSFER DEBIT PC INIllA TED OUTGOING WIRE PC INITIAlED OUTGOING WIRE MISCELLANEOUS DEBIT MISCELLANEOUS DEBIT MISCELLANEOUS DEBIT DOMESTIC OUTGOING WIRE DOMESllC OUTGOING WIRE BOOK TRANSFER DEBIT BOOK TRANSFER DEBIT BOOK TR.A.NSFER DEBIT BOOK TR.A.N SFER DEBIT MISCELLANEOUS DEBIT DOMESTIC OUTGOING WIRE DOMESTIC OUTGOING WIRE
Page 2 of 3
This Statement Covers Account N urn ber: 179·165066·7
From: 08101/08 06/31/06
Card Numbar
Deposits are FDIC Insured LENDER
OCl1 111 31 083108 PAGE l or 3 COLR1l211 13Z 1 3100 IlllIA Hlll
Your Overdrafl Umll as of the statement end date: $1.000.00Please note that this may be changed B/ My time without not/{;{i. (View back 0' statement 'or mora Information.)
WElL, GOTSHAL & MANGES LLP 767 FirtH AveNUE' NEW YOR/(. NY /0153·0119
(1 I 7) 31 o· 8000
FAX, (111) 110·B007
September 19. 2008
Stewart M. Landefeld, Esq. Executive Vice President & Interim Chief Compliance Officer Washington Mutual, Inc. 1301 Second Avenue, WMC330 Seattle, W A 98101
Dear Stewart:
1q~31
This will confirm Weil, Gotshal & Manges LLP's ("WG&M's") engagement to represent Washington Mutual, Inc. (the "Company,") in the matters described below (the "Engagement").
Scone of the Engagement
The Engagement will consist of evaluation of strategic options and possible restructuring of the Company.
Fees and Expenses
The Company will be charged for WG&M's professional services at the firm's regular hourly rates then in effect for the attomeys or paralegals working on the Engagement. Currently, WG&M's billing rates range between $155 (for paralegals) and $950 per hour, depending upon the level of seniority and expertise of the particular attorney or paralegal involved. We will notify you of changes in billing rates within a reasonable period of time. If you desire, we wi]) send you a schedule of our hourly billing rates.
All statements for services rendered will set forth the time expended ill rendering WG&M's services, describe those services, and, if requested, will specify the
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Restricted For Use in Connection with Plan Confirmation Only
Highly Confidential Information
WGM_00038642
WElL, GOTSHAL & MANGES LLP
Stewal1 M. Landefeld, Esq. Washington Mutual, Inc. September 19, 2008 Page 2
name of the individual who rendered the services during the particular period and that person's hourly billing rate.
In addition, the Company will reimburse WG&M for all expenses incurred in connection with the services rendered. We will itemize all categories of reimbursable expenses as part of our statement. For your information, we are enclosing our fee and disbursement policy. We also may forward to you, for direct payment by the Company, certain invoices or charges (~, expert fees, court reporter charges, corporate filing fees, etc.) received by us from third parties acting for the Company's benefit. The Company shall be respollSible for making these direct payments in a timely mamlcr.
To the extent feasible, the Company will be billed monthly for services rendered by us and expenses incurred by us. Please review our statements as soon as you receive them and promptly raise any questions that the Company may have. If the Company does not do so, we will assume that the Company accepts the statemellts as presented. Upon receipt of each of our statements, the Company shall promptly remit the amount due us.
Retainer
In order to assure the Company of WG&M's continued availability to represent it, the Company will promptly remit to us an initial retainer of $350,000, to be applied against WG&M's fees and as an advance against expenses ("Retainer").
If, at the end of the Engagement, the amount remaining in the Retainer exceeds the outstanding balance of our fees and expenses, we will refund the unused portion. To the extent WG&M's aggregate charges have reduced, or are about to exhaust, the Retainer, at our request the Company will promptly remit an additional Retainer in the amount set forth above, or as we may otherwise consider reasonably necessary.
Conflicts Waiver
This firm is a general service law firm that the Company recognizes has represented. now represents, and will represent numerous clients (that may include, without limitation, the Company's or its affiliates' debtors, creditors, and direct competitors) nationally and intemationalIy, over a wide range of industries and businesses and in a wide variety of matters. The Company also specifically recognizes that this firm may represent the Company's or its affiliates' adversaries, including the adversary in the Engagement, in matters not substantially related either to the
Restricted For Use in Connection with Plan Confirmation Only
Highly Confidential Information
WGM_00038643
WElL, GOTSHAL& MANGES UP
Stewart M. Landefeld, Esq. Washington Mutual, Inc. September 19,2008 Page 3
Engagement or to other legal services that WG&M has rendered, is rendering, or in the future may render to the Company or any affiliate ("Allowed Adverse Representations"). As an example, when WG&M's financial restructuring and bankruptcy practice represents an entity in financial distress, WG&M could be called upon to act adversely to certain ofthat entity's numerous creditors, equity interestholders, or other parties in interest that may also be the firm's clients in unrelated matters. Thus, without a binding conflicts waiver, ~onflicts of interest might arise that could deprive the Company or other clients of the right to select WG&M as their counsel.
Therefore, as an integral part of the Engagement, the Company agrees that WG&M may, now or in the future, represent other clients in Allowed Adverse Representations. This agreement allows WG&M, among other things, to serve as counsel in litigation adversely to the Company or any affiliate on matters that are not substantially related to (a) the legal services that WG&M has rendered, is rendering, or in the future will render to the Company under the Engagement and (b) other legal services that WG&M has rendered, is rendering, or in the future will render to the Company or any affillate.
The Company also agrees that it will not, for itself or any other entity or person, assert that either (a) WG&M's representation of the Company or any affiliate in any past, present, or futW'e matter or (b) WG&M's actual, or possible, possession of confidential information belonging to the Company or any affiliate is a basis to disqualify WG&M from representing other clients in Allowed Adverse Representations. The Company further agrees that Allowed Adverse Representations do not breach any duty that WG&M owes to the Company or any affiliate.
This will also confirm that WG&M has not been asked to, and does not by undertaking this Engagement agree to, (n) establish an attorney-client relationship with, or (b) provide individual legal advice to, any entities affiliated with the Company, or their or the Company's individual directors, officers, employees, or shareholders. WG&M will establish an attomey-client relationship with, and provide legal advice to, these entities or individuals only if WG&M is asked and specifically agrees to do so in writing.
WG&M may cease providing services to the Company and terminate this Engagement as may be permitted by the applicable ethics rules or codes in effect at the time of termination, or by order of a court or other tribunal. The Company may terminate this Engagement at any time, but doing so, or termination by WG&M as provided in the
Restricted For Use in Connection with Plan Confirmation Only
Highly Confidential Information
WGM_00038644
WElL. GOTSHAL& MANGES UP
Stewart M. Landefeld. Esq. Washington Mutual, Inc. September 19,2008 Page 4
preceding sentence, does not relieve the Company from any obligation arising during the Engagement, including the obligation to pay our fees and disbursements and any Retainer when due.
This agreement will continue in effect after WG&M's representation of the Company has ceased. Once the Engagement has concluded, however, WG&M wiH have no responsibility to inform the Company about changes in the law that affect advice or opinions that WG&M has previously provided.
The laws of the State of New York alone (including all rules or codes of ethics which apply to the providing of legal services), and without regard to its conflict of law rules, shall govern this agreement and its interpretation. Any dispute relating to this Engagement shall be decided exclusively by a state or federal court sitting in New York County without a jury. Both we and the Company consent to the jurisdiction of these courts and waive any right to a jury trial.
The Company acknowledges that WG&M is undertaking this Engagement in reliance upon the Company entering into this agreement.
Finally, this agreement will also apply to all future matters in which WG&M represents the Company for 12 months from the date of this agreement or for the duration of this engagement, whichever is later, excepl that we will confirm in writing the specific scope of our engagement for each future matter and the modification for that matter, if any, to our retainer.
Please review this agreement. If the foregoing is in accord with your understanding of our agreement with the Company, please execute the enclosed copy of this letter, being sure to provide the Company's taxpayer identification number in the space provided therefore, and return it to us with a check for any applicable Retainer. or
Restricted For Use in Connection with Plan Confirmation Only
Highly Confidential Information
WGM_00038645
WElL, GOTSHAL & MANGES LLP
Stewali M. Landefeld, Esq. Washington Mutual, Inc. September 19,2008 Page 5
We are pleased to be of service in this matter, and we assure you of our continuing desire to be of service in the future.
AGREED TO AND ACCEPTED
verl~~!Jlrrs, -! /.,) .', '''-., U han D. Polkes---..........
this ~ day of September, 2008
STEWART M. LANDEFELD
By: SLf{tv~$ Stewart M, Landefeld
-----------_._--
WMMRIC
Item
WM Mortgage Reins
Beginning Balance 238,747,640
Taxable Income/(Loss)
Net Taxable Income/(Loss)
Tier-Up Adjustment
Ending Balance
Ne
ga
tiv
e A
dju
stm
en
ts
Losses
Non-C
apital, Non-D
eductible Expenses
Other
"Taxable Income"
"Tax-Exempt Income"
E&P O
nly
WGM_00038646 Return
DRAFT· For Discussion Purposes Only
PRIVILEGED AND CONFI[)fIl\lTIAl- PREPARED AT THE REQUEST OF COUNSEl IN ANTICIPATION OF LiTIGATION
SU8JECT TO ATIOR.N€Y··OJ£NT AND WORK PRODUCT PlRlVitEGES
E,timated Ta. Refund
Washington Mutual, Inc, Subsidiaries Potential Tax Items
E,tlmated
Type ofTa:.: Type of (lalm T.axYear{s) Estimated Amount Setilemefit D2Ite Interest
~
NormailOO8 Los:> CarrybaCK F-ed!Ha~ loss urryback Net of Adjustments 1,811,164,002 10/7/2010 2S,D49,8S6
Due 10 Extended NOl C",rrybilck Federal loss carryback Net of Adjustments 2,713,328,755 10/7/2010 65,639,712
feoJ!'fal Net Refund le~$ EstImated Payment for 2009 1008 2],687,622 10/7/2010 548,850
2009 R.e-fund f .. der./l! Proj~ted Refund for 2009 1009 10,{)()(),OOO 10/30/2010
Tax Penalty" 2004 federal Abatement of PreVl0us!y Pald Periilfty 2004 9,927,843 10/7/1010 Vtlfi,599
2003 f .. 1Iure to Pay Penalty Ft'deral Reversal of Assessed PeMlty 2003 18,981.655 10/7/2010 4 c 'l80,61B
Overp3vm<ent jn~~rt'st Federal Pot1!'ntHII R.efund Galm 2003 12,000,000 699,392
Total Liabilities & Shareholders Equity 471,928,443 (7,498,907) 464,429,536
* Per 12/31/09 Audited Financial Statements** From Detail Schedules of Deferred Tax Items provided (reconciled to Note D ‐ Component of Deferred Income Taxes of 12/31/09 Financial Statements grossed up to reflect basis adjustments)*** Removed Liability which is to be paid with tax receivable in 2010. Tax Receivable reflected as zero on financial statements due to collectibility concerns.
Computed Tax Gain (Loss) on Asset Sale at Various Prices:
Less: Estimated Tax Basis of Assets 464,429,536 464,429,536 464,429,536
Net Tax Gain (Loss) (133,468,600) (83,468,600) (33,468,600)
WGM_00038650
Expert Report of Steven Zelin, Blackstone Advisory Partners, L.P.
Washington Mutual, Inc.
October 26, 2010
PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
Restricted for Use in Connection with Plan Confirmation Only Highly Confidential - Attorneys' Eyes Only Information.
Restricted For Use in Connection with Plan Confirmation Only WMI-BX_701361066.00001
Washington Mutual, Inc.
1Confidential
PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
Disclaimer
This expert report (“Expert Report”) of certain assets of Washington Mutual, Inc. (“WMI” or the “Debtors”) has been prepared by Blackstone
Advisory Partners L.P. (“Blackstone”) solely for informational purposes using certain information provided by the Debtors, its legal and financial
advisors, and publicly available information (collectively, the “Sources”). Blackstone makes no representation or warranty, express or implied, as to
the accuracy or completeness of the information obtained from the Sources, and nothing contained herein is, or should be relied on as a promise or
representation, whether as to the past or the future. Blackstone has not independently verified information obtained from the Sources. The Expert
Report is not a proposal or a solicitation and is non-binding on all parties.
This Expert Report includes certain statements, estimates, and projections prepared and provided by the Sources with respect to, among other things,
the anticipated operating performance of the Debtors. Such statements, estimates, and projections reflect various assumptions by the Sources
concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been
included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements,
estimates, or projections or with respect to any other materials herein. Actual results may vary materially from the estimates and projected results
contained herein.
By accepting the Expert Report, each recipient agrees that Blackstone shall have no liability on any basis (including, without limitation, in contract, tort,
under United States or other countries’ federal or state securities laws or otherwise) for any representations, express or implied, contained in, or for any
omissions from, this Expert Report or any other written or oral communications transmitted to the recipient by or on behalf of the Debtors or Blackstone
in the course of the recipient’s evaluation of the Expert Report. The information contained herein has been prepared to assist the recipients in making
their own evaluation and does not purport to be all-inclusive or to contain all of the information that may be material.
The information and data contained herein are confidential and may not be divulged to any person or entity or reproduced, disseminated, or disclosed,
in whole or in part, except as required by applicable law or regulation, as requested by regulatory authorities, or with the consent of Blackstone.
This presentation is not intended to furnish legal, regulatory, tax, accounting, investment or other advice to any recipient. This presentation should be
reviewed by each recipient and its legal, regulatory, tax, accounting, investment and other advisors. Recipients should not regard it as a substitute for
the exercise of their own judgment.
Restricted for Use in Connection with Plan Confirmation Only Highly Confidential - Attorneys' Eyes Only Information.
Restricted For Use in Connection with Plan Confirmation Only WMI-BX_701361066.00002
Washington Mutual, Inc.
2Confidential
PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
Table of Contents
Comparable Company Analysis 60
Reorganized WMI Financial Model Support 48
Steven Zelin Qualifications 46
Appendix 45
IV. Subscription Rights Valuation 43
(e) Reorganized WMI Valuation – 382(l)(6) Value 41
(d)(ii) Adjusted Financial Model (Including NOLs) 37
(d)(i) Financial Model (Including NOLs) 33
(d) Reorganized WMI Valuation - DCF Analysis Including NOLs 31
Restricted for Use in Connection with Plan Confirmation Only Highly Confidential - Attorneys' Eyes Only Information.
Restricted For Use in Connection with Plan Confirmation Only WMI-BX_701361066.00003
Confidential
PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
I. Introduction
Restricted for Use in Connection with Plan Confirmation Only Highly Confidential - Attorneys' Eyes Only Information.
Restricted For Use in Connection with Plan Confirmation Only WMI-BX_701361066.00004
Washington Mutual, Inc.
4Confidential
PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
Introduction
This Expert Report has been prepared by Steven M. Zelin and others under his supervision at Blackstone at the request of Washington Mutual, Inc., et al. before the US Bankruptcy Court for the District of Delaware (“Bankruptcy Court”)Mr. Zelin is a Senior Managing Director in Blackstone’s Restructuring and Reorganization Group, an industry leader in providing advice to debtors and creditors in large, complex restructuringsMr. Zelin will provide expert testimony regarding his opinion of the following assets of WMI (together the “WMI Assets”):
Valuation analysis of WMI as collectively reorganized (“Reorganized WMI” or the “Company”), which includes WM Mortgage Reinsurance Company (“WMMRC”), WMI, and WMI Investment Corp., as of December 31, 2010Valuation analysis of Reorganized WMI’s net operating losses (“NOLs”) as of December 22, 2010Valuation analysis of the Subscription Rights to the Rights Offering as contemplated in the Plan of Reorganization (the “Plan”) as of December 31, 2010
Mr. Zelin’s testimony is part of the services provided by the engagement of Blackstone by WMI. The compensation for such engagement (1) is as follows:
A retainer fee of $500,000 earned upon Bankruptcy Court approval of Blackstone’s retentionAn additional fee of $850,000 earned upon completion of Blackstone’s valuationA monthly fee of $75,000 beginning on September 1, 2010, subject to approval by the Bankruptcy CourtReimbursement of expenses incurred in connection with Blackstone’s retention and valuation
In addition, Blackstone has been asked by the Company to represent it in the potential sale of the WMMRC asset. If the sale processcommences, compensation for the engagement is as follows:
A transaction fee of $2,000,000, payable upon the consummation of a sale, which includes a non-refundable $500,000 retainer feeReimbursement of expenses incurred in connection with advising on the sale
Blackstone’s compensation is not contingent on the conclusions reached in this Expert Report and / or any outcome of any proceedings pending before the Bankruptcy Court
I. Introduction
________________________________________________
(1) All terms used but not defined herein shall have the meanings ascribed to them in the Sixth Amended Joint Plan of Affiliated Debtors Pursuant to Chapter 11 of the United States Bankruptcy Code, dated October 6, 2010.
Restricted for Use in Connection with Plan Confirmation Only Highly Confidential - Attorneys' Eyes Only Information.
Restricted For Use in Connection with Plan Confirmation Only WMI-BX_701361066.00005
Washington Mutual, Inc.
5Confidential
PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
General Background
Mr. Zelin is a Senior Managing Director with Blackstone and has been with the firm in excess of twelve years, including nine yearsas a Senior Managing Director
Prior to joining Blackstone, Mr. Zelin was a Partner in the Restructuring & Reorganization Group of Ernst & Young LLP, having been involved full time in restructuring advisory work since 1988
Mr. Zelin has been named as one of the country’s leading restructuring advisors in each of the 2003 through 2010 K&A Restructuring Register, a peer group listing of the top legal and financial advisors who practice in the United States
Mr. Zelin received a BS in 1984 from the University at Albany, where he serves as a member of the School of Business Advisory Board, and an MBA in Finance in 1991 from New York University’s Stern School of Business where he serves as the Chairman of the Dean’s Executive Board. Mr. Zelin is a Certified Public Accountant
Some of Mr. Zelin’s most notable publicly disclosed assignments include:
I. Introduction Steven Zelin Qualifications
AbitibiBowater Corp.Aeromexico, S.A. de C.V. / Mexicana Airlines, S.A. de C.V.American Axle & Manufacturing, Inc.Apex Silver Mines LimitedCentaur LLCDelphi Corp.Enron Corp.Entergy New Orleans, Inc.
Jefferson County, AlabamaMarvel Entertainment Group, Inc.The Pacific Lumber Company / Scotia Pacific Company LLCR.H. Macy & Co.SemGroup, L.P.Vencor, Inc.Xerox Corp.
Restricted for Use in Connection with Plan Confirmation Only Highly Confidential - Attorneys' Eyes Only Information.
Restricted For Use in Connection with Plan Confirmation Only WMI-BX_701361066.00006
Washington Mutual, Inc.
6Confidential
PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
Prior Testimony(1)
AbitibiBowater Corp.American Banknote Corp.Apex Silver Mines LimitedAudio Visual Services, Inc.Big V Supermarkets (ShopRite)Centaur LLCEnron Corp.Indesco CorporationMeridian Automotive Systems, Inc.The Pacific Lumber Company / Scotia Pacific Company LLCParagon Trade Brands, Inc.The Penn Traffic CompanySafelite Glass Corp.SemGroup, L.P.Vencor, Inc.
Presentations
February 2010 – NYU Stern School of Business guest lecturer regarding restructuring trendsJanuary 2010 – JPM high-yield conference, panel discussion regarding restructuring trendsApril 2008 – Debtwire Distressed Debt Forum regarding restructuring trendsSeptember 2007 – Deutsche Bank high-yield conference, panel discussion regarding restructuring trendsFebruary 2007 – VALCON Conference regarding distressed hedge fundsNovember 2006 – NYU Distressed Investors Conference panel discussion regarding automotive restructuringsOctober 2006, October 2005, April 2004, October 2003 – NYU Stern School of Business guest lecturer regarding restructuring trendsSeptember 2005 – Lehman hosted investors conference regarding the new bankruptcy codeMarch 2004 – VALCON: The Conference on Bankruptcy Valuation, presentation regarding valuation methodology in chapter 11May 2003 – Morgan Stanley Equity Conference, presentation regarding recent trends in commercial banks’ approach to restructuringsMarch 2003 – Lehman High Yield Conference, presentation regarding energy industry restructuring trends
I. Introduction Steven Zelin Qualifications (Cont’d)
________________________________________________
(1) Testimony since 2001, including depositions and proffers.
Restricted for Use in Connection with Plan Confirmation Only Highly Confidential - Attorneys' Eyes Only Information.
Restricted For Use in Connection with Plan Confirmation Only WMI-BX_701361066.00007
Restricted for Use in Connection with Plan Confirmation Only Highly Confidential - Attorneys' Eyes Only Information.
Restricted For Use in Connection with Plan Confirmation Only WMI-BX_701361066.00008
WashingtOD MUbla., Inc. I. InUoducH n Signature Page
PRIVILEGED AND CONFIDENTIAL Prepared at the Request of Counsel
~ I reserve the right to supplement the opinions, analyses and conclusions presented in this expert report based on any subsequently obtained information, including but not limited to, any objections, testimonies, reports of other experts and new market information
.. I further reserve the right to create additional exhibits, as approPri~ p Steven Zelin
Confidential 7
Senior Managing Director
Blackstone Advisory Partners L.P.
Date
_ Advisory Partners
Washington Mutual, Inc.
8Confidential
PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
I. Introduction Valuation Summary
($ in millions)
125
115
165
145
$- $50 $100 $150 $200
Including NOLs
Excluding NOLs
Discounted cash flow analysis and precedent transaction analysis; assumes post-emergence net operating losses are not available to shelter any Reorganized WMI taxable income
Same as above, however, assumes post-emergence net operating losses are available to shelter any taxes payableLevel of post-emergence NOLs assumes Company emerges on or before December 22, 2010 or after January 1, 2011
Recommended Value Range Methodology
0.0%
0% 5% 10% 15% 20%
$100 million
of Subscription
Rights
Reorganized WMI
Subscription Rights
Given the timing and amount of the potential NOLs, Blackstone attributes no value to the Subscription RightsShould the Debtor’s emergence be delayed until next year, the value of the Subscription Rights may change
Restricted for Use in Connection with Plan Confirmation Only Highly Confidential - Attorneys' Eyes Only Information.
Restricted For Use in Connection with Plan Confirmation Only WMI-BX_701361066.00009
Confidential
PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
II. Documents Reviewed by Blackstone
Restricted for Use in Connection with Plan Confirmation Only Highly Confidential - Attorneys' Eyes Only Information.
Restricted For Use in Connection with Plan Confirmation Only WMI-BX_701361066.00010
Washington Mutual, Inc.
10Confidential
PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
Documents Reviewed by BlackstoneII. Documents Reviewed by Blackstone
Publicly Available Documents
WMI Disclosure StatementPlan of ReorganizationGlobal Settlement AgreementCorporate filings (such as 10-Ks, 10-Qs, 8-Ks, and press releases) for comparable companies and companies involved in precedent transactionsEquity and industry research reportsTax cases (Briarcliff Candy Corp. v. Comm’r, 54 T.C.M. (CCH) 667 (1987).; Enbridge Energy Co. v. United States, 354 F. App’x. 15 (5th Cir. 2009).)
Documents Received from Debtor and Alvarez & Marsal North America, LLC (“Alvarez & Marsal”)
WMMRC unaudited actual financial results through July 2010Monthly WMMRC financial forecasts through December 2019 assuming Company’s post-emergence NOLs are available to shield taxable incomeMonthly WMMRC financial forecasts through December 2019 assuming post-emergence NOLs are not available to shield taxable incomeWMMRC Cash Flow Projection detailing minimum and withdrawal capital requirementsWMMRC Cash and Investments DetailCaptive Summary based on Cession Statements(1) as of July 2010 for each primary mortgage insurerDetailed book-by-book buildup of premiums, losses incurred, losses paid, and reserves for each primary mortgage insurerHistorical book-by-book buildup of premiums from January 1997 – March 2009 for each primary mortgage insurerWMMRC Fact Sheet and Organization Chart
________________________________________________
(1) Cession Statements are the periodic statements of premiums and the losses and expenses incurred under the reinsured policies, provided by the primary insurer to a reinsurer.
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Washington Mutual, Inc.
11Confidential
PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
Documents Reviewed by Blackstone (Cont’d)II. Documents Reviewed by Blackstone
Documents Received from Debtor and Alvarez & Marsal (Cont’d)
Risk-in-force(1) and insurance-in-force(2) analysis comparing WMMRC to its peers based upon various loan metricsEstimate of worthless stock loss under scenarios assuming both pre-emergence and post-emergence triggers of worthless stock deductionWashington Mutual, Inc. Recovery AnalysisWashington Mutual, Inc. Claims CalculationSchedule of WMMRC investments for December 2009 and May 2010Unsolicited bids for WMMRC dated February and April 2009
Documents Received from Milliman, Inc.
WMMRC December 2009 Reinsurance Performance Metrics executive summaryWMMRC draft and final December 2009 reinsurance performance metrics WMMRC draft and final December 2009 home loan forecasting exhibitsWMMRC draft and final December 2009 WM II forecasting exhibitsWMMRC draft December 2009 forecasting exhibitsWMMRC draft March 2010 WM reinsurance performance metrics quarterly breakdown of losses and premiumsWMMRC draft June 2010 WM reinsurance performance metrics forecasting exhibits
________________________________________________
(1) Represents the aggregate unpaid balances of loans insured multiplied by the amount of coverage of such loans.(2) Represents the total amount of insurance outstanding.
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PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
III. Reorganized WMI Valuation Summary
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Washington Mutual, Inc.
13Confidential
PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
Reorganized WMI Valuation Summary – Dec. 31, 2010
(Excluding Proceeds of the Rights Offering)III. Reorganized WMI Valuation
Summary
Excluding NOLs
($ in millions)
115
150
110
145
210
130
$75 $100 $125 $150 $175 $200 $225
Blackstone
Recommended
Value Range
Precedent
Transactions
Discounted
Cash Flow
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Washington Mutual, Inc.
14Confidential
PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
Financial model provided by the Debtors (“Financial Model”) including NOL utilization dated September 21, 2010Financial Model provided by the Debtors adjusted to exclude NOL utilizationMilliman actuarial analyses of premium income and loss payments used in the preparation of the Financial ModelState of Hawaii regulatory requirements remain as set forth in the Financial ModelValuation prepared assuming effective date as of December 31, 2010
Approaches
Discounted Cash FlowAnalysis of projected dividend stream payable to holders of Reorganized WMI equity
Based upon diligence with Milliman and Alvarez & Marsal, Blackstone considered in its valuation the impact of a 10% improvement in the level of loan loss reserves as forecasted by Milliman (the “Adjusted Financial Model”)
Discount rate estimates based upon:Weighted average cost of capital (“WACC”) based upon public comparable company analysis Blackstone’s judgment as to the returns required by acquirers of similar assets
Precedent TransactionsPrice-to-book multiples paid in precedent transactions of both run-off and going-concern portfolios for transactions of comparable size to the WMMRC portfolio
Comparable CompaniesGiven the size and the ongoing nature of the comparable company universe, a comparable company analysis was not relied upon in determining the value of Reorganized WMI
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PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
Recommended WACC Discount Factor Range 13.0% 15.0%
________________________________________________
Note: Comparable company list excludes multi-national reinsurance businesses.(1) Based on stock price as of 10/14/2010.(2) Per Capital IQ.(3) Unlevered Beta = Levered Beta/(1+((Debt/Equity)*(1-Tax Rate))).(4) Long-Horizon Equity Risk Premium from 1926 to 2008 per the 2009 Ibbotson Associates Risk Premia over Time Report.
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PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
(a)(i) Financial Model (Excluding NOLs)
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Washington Mutual, Inc.
19Confidential
PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
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Washington Mutual, Inc.
27Confidential
PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
Deal Deal Value / Deal Value / Deal ValueBuyer / Target Nature of Portfolio Announced Completion Value Book Tangible Book / RevenueRun-Off PrecedentsCitadel Risk Management / Arthur J Gallagher Property & casualty; health & welfare; retirement 2/22/2008 3/26/2008 $ 38.0 1.1x 9.3x 0.7x
White Mountains Insurance/ Helicon Re Holdings Ltd. Property & casualty 1/7/2008 1/7/2008 150.2 1.0 NA NA
Fortress Investment Group / Alea Group Holdings Property & casualty 4/4/2007 7/20/2007 319.7 0.7 0.7 1.5
Catalina Holdings / Overseas Partners Re Property & casualty 9/3/2005 9/21/2005 170.5 0.7 NA NA
Fairfax Financial Holdings / Markel Corp Property, aviation, marine and credit 1/1/2005 1/11/2005 57.0 1.0 NA NA
Enstar Group Inc. / Toa-Re Insurance Co. (U.K.) Life insurance 3/31/2003 4/2/2003 46.0 0.8 NA NA
Going-Concern PrecedentsSCOR / PartnerRe Life Insurance Co. Life insurance 4/12/2000 8/4/2000 $ 145.0 1.4x NA 0.7x
Swiss Reinsurance Co. / Underwriters Re Group Inc. Property & casualty 12/13/1999 5/10/2000 659.1 1.6 NA NA
Gerling-Konzern Versicherungs / Constitution Re Property & casualty 7/24/1998 10/27/1998 700.0 1.3 NA NA
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Washington Mutual, Inc.
29Confidential
PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
NOL Valuation – Dec. 22, 2010
(Excluding Proceeds of the Rights Offering)(c) Reorganized WMI Valuation - NOL
Valuation Summary
Value of NOLs
($ in millions)
10
5
15
20
10
25
$- $5 $10 $15 $20 $25 $30 $35 $40
Blackstone
Recommended NOL
Value(1)
Post-Change
382(l)(6) Limitation
NOLs utilized by
Reorganized WMI
Reorganized WMI Value (Including NOLs)(2)
($ in millions)
125
150
125
165
210
155
$75 $100 $125 $150 $175 $200 $225
Blackstone
Recommended
Value Range
Precedent
Transactions
Discounted
Cash Flow
________________________________________________
(1) Total Adj. NOL Value based on estimated probability of NOLs being recognized as ordinary income.(2) Level of post-emergence NOLs assumes Company emerges on or before December 22, 2010 or after January 1, 2011.
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Washington Mutual, Inc.
30Confidential
PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
Net Operating Loss Valuation Summary
Key Assumptions
Summary of available NOLs(1)
Reorganized WMI generates no additional taxable income beyond that forecasted in the Reorganized WMI financial projections
Approach
NOLs utilized by Reorganized WMI - utilization of post-emergence NOLs to shelter taxable income generated by the existing portfolio
Discount rate estimates based upon similar discount rates used to value the underlying portfolio
Post-Change 382(l)(6) Limitation Value (“Post-Change Value”) - valuation based upon the present value of the assumed maximum usage pursuant to the 382(l)(6) limitation under the assumption that Reorganized WMI is sold to a third party
Discount rate estimate of 25% - 35% incorporates a premium for transaction risk
Applicable federal tax rate for 382(l)(6) limitation – 3.98% (October 2010)________________________________________________
(1) Based on analysis provided by the Debtors, Alvarez & Marsal and Weil, Gotshal & Manges, LLP (“Weil”).
(1) See page 17 for recommended range of Discount Factor.
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PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
IV. Subscription Rights Valuation
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Washington Mutual, Inc.
44Confidential
PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
Terms of the Rights OfferingIV. Subscription Rights Valuation
$100 million rights offeringNo backstopNo discount to value of Reorganized WMIOffered to the holders of the PIERS claims$2 million minimum participationThe Rights Offering will be subject to 1145 limitationsThe Rights Offering will commence on the date Ballots and Subscription Forms are mailed to Voting Nominees on behalf of holders of the PIERS claims; the date by which holders of Subscription Rights must elect to subscribe to the Rights Offering is defined in the Plan as the Subscription Expiration DateThe equity in Reorganized WMI purchased through the Rights Offering will be distributed on the Effective Date or as soon as practicable thereafterTo the extent a holder of a PIERS claims elects to exercise Subscription Rights and receives equity in Reorganized WMI, such holder’s distribution of Creditor Cash or Cash to be received on account of Liquidating Trust Interests, shall be reduced, on a dollar-for-dollar basis, by the value of the Subscription Rights exercisedSubject to the Debtors’ sole and absolute discretion, each eligible holder of Subscription Rights that exercises its Subscription Rights in full will also have an over-subscription right to purchase any additional shares of Reorganized WMI equity not purchased by other eligible holders of the Subscription Rights pursuant to the Rights Offering
As part of the Plan of Reorganization, a rights offering is being offered to holders of the PIERS claims to invest in Reorganized WMI.
________________________________________________
Source: Sixth Amended Disclosure Statement, dated October 6, 2010.Note: Pursuant to Section 34.7 of the Plan, in the event the Debtors enter into a Retention/Sale Transaction, no Additional Common Stock
will be issued and the Debtors will return all payments made pursuant to the Rights Offering.
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PRIVILEGED AND CONFIDENTIALPrepared at the Request of Counsel
Appendix
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