In WaMu takeover, JPMorgan takes calculated risk

The CEO of WaMu is entitled to more than $13 million in severance and bonus pay. U.S. taxpayers, meantime, could end up shouldering billions of dollars worth of shaky mortgages and other investments that contributed to WaMu's demise. Such a scenario assumes the massive bailout proposed by Treasury Secretary Henry Paulson, or something like it, will be approved and JPMorgan will sell WaMu's least desirable assets to the government.

For its $1.9 billion investment, JPMorgan gets control of the nation's largest thrift--more than 5,000 branches in 23 states. It also assumes a highly stressed loan portfolio that could result in a $31 billion write down.

While JPMorgan would be in a position to limit such a hit by taking advantage of a Paulson-like bailout plan, analysts said the bank is strong enough--it had $98.7 billion in capital at the end of the second quarter--to shoulder the write down on its own.

"I don't think they need the government bailout to make WaMu work," said Len Blum, managing director of Westwood Capital. "They have the capital, they have the strength to hold those assets and take the write down.."

Blum expects the bank to benefit from the bailout in a more indirect way--as strong banks will prosper in a more stable market environment.

During a conference call with investors Thursday night, JPMorgan Chief Executive Jamie Dimon said the government's proposed bailout plan wasn't a factor in the acquisition.

Some experts said that's just not plausible.

Jim Wilcox, a finance professor at the University of California Berkeley's Haas School of Business, said he believes JPMorgan based its acquisition of WaMu on the assumption that a Paulson-like bailout plan would pass.

Bart Narter, senior vice president of banking at Boston-based research and consulting firm Celent, said JPMorgan made a calculated risk.