I did some work in Wamu's case.this is the odds per REAL delinquency data on their stuffs (option arm, arm, fixed, subprime, commercial) and what they disclosed in 10-Q:
75% chance the writedown is greater than $11 B. 50% chance the writedown is greater than $16 B. 25% chance the writedown is greater than $27 B.
Now compare that with the Book Equity value of 24 Billion $ (11/07)
They don't have to reach 24 B writedown for BK issues, 15-20 would suffice. .
Based on this, the stock value would have been $6-$10 - the 50% even odds at book value, assuming they don't shrink (yeah, right).The writedown is cash intrinsic value.
That's the value realized if they have the ability to hold them in balance sheet and not have to sell.If on the other hand they're ever forced to sell distress, there is NO floor. 10-25 cents on the dollar is the expectation, just like Etrade.
All of that has been realized. On March 07, 2008, I achieved the $10 Wamu price target I set in Dec and closed my remaining Wamu 15s - a bit early but I was satisfied!
A week after this got published, there was a ruckus in the trading floor, and some of them printed this article and gave it to me. Of course, the name is an alias, and only a smile was appropriate for the occasion.