confidentialwmish.com/joshua_hochbergs_joke/epic_fail/4513/wmi_pc_111210525.00001.… · summary...

From: Brouwer, Curt

To: Anderson, Jason S. US Seattle)

Sent: 8/21/2008 6:54:23 PMSubject: Per our discussion

Attachments: Discussion Materials 032608.pdf

As we discussed, only provide this document to Jim until we have further discussionswith Todd tomorrow.

Curt <<...>>

Curt Brouwer

Washington Mutual

Senior Vice President, Corporate Tax

1301 Second Ave., WMC3201

Seattle, WA 98101

206.500.4155 direct 206.377.3018 fax

E-mail: [email protected]

IRS Circular 230 Disclosure: To Ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal

tax advice contained in this communication including any attachments) is not intended or written to be used, and cannot be

used, for the purpose of i) avoiding penalties under the Internal Revenue Code or ii) promoting, marketing or recommending

to another party any transaction or matter addressed herein.

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CONFIDENTIAL

Restricted For Use in Connection with Plan Confirmation Only WMI_PC_111210525.00001

Project Olympic

Discussion Materials

26 March 2008

CONFIDENTIAL


Summary

Project Olympic

1

• Cerberus has significant interest in a partnership with WaMu

• Partnership will be a strategic and financial investment

–Significant value created through synergies and revenue enhancement

opportunities; access to other Cerberus portfolio companies

–Material equity investment by Cerberus

• Creation of SPV majority owned by Cerberus to buy residuals from

securitization of

higher-risk assets

• WaMu acquisition of

Chrysler Financial provides asset and earnings

diversification as well as substantial tangible equity capital

• Cerberus team able to move quickly

CONFIDENTIAL


Advantages for WaMuProject Olympic

2

• Diversification of

balance sheet and business

–Mortgage loans fall from ~73% of

loans to ~57% of

loans on a managed basis: adds auto, and

expands commercial and small business loans

–Exclusive access to all subvented automotive loans and leases through 9 year exclusivity

agreement with Chrysler

–$ 75 billion managed auto loan portfolio; $ 40 billion on-balance- sheet portfolio

–Improved diversification will improve valuation in public market

–Minimal auto lease residual risk (0.5%)

• SPV accelerates problem asset disposition

• Utilization of

significant excess capital at

Chrysler Financial

–Chrysler Financial has tangible common equity of

$7.4Bn( 1)

resulting in a tangible common to

tangible assets ratio of 17%

• Value creation through synergies

–Access to 3.6 millioncustomers and over 3,000 dealerships (both Chrysler and non- Chrysler

dealers)

–Ability to create affinity branded credit card, deposit and other products

–Potential cost saves from combining certain servicing functionality

• Access to new capital

–Cerberus willing to invest additional capital in new company

Note

1.

Preliminary. Audit complete subject to final purchase accounting adjustment

CONFIDENTIAL


Resulting Ownership( 1)

• WaMu ownership split between current WaMushareholders, Chrysler Holding and Cerberus

Proposed Structure

Project Olympic

3

Transaction Steps

• WaMu issues shares to Chrysler Holding in exchange

for Chrysler Financial

– Chrysler Financial sold to WaMu at

tangible book

value

• Cerberus purchases $500 million of

newly issued

WaMu equity

Daimler

Public

Shareholders

100%

Chrysler

Financial

TBV: $ 7.4Bn

Cerberus

20% 80%

$7.4Bn

Shares

WaMu

Public

Shareholders

Chrysler

Holding

Chrysler

Financial

WaMu

• For illustrative purposes, wehave used WaMu’s current

market cap of $11.2 billion

based on

3/ 25/ 08 stock price

of

$12.70 to calculate pro

forma ownership

percentages

• Cerberus willing to work with

OTS on structuring

investment

• SPV

–WaMu writes-down to

current value and

securitizes up to $48 billion

of

higher-risk loans

–Cerberus creates wholly

owned SPV to buy

residuals interest in the

trust and WaMu retains the

most senior tranches

$0.5Bn

$0.5Bn

shares

Note

1.

Based on market cap at

3/ 25/ 08

Chrysler

Holding

Cerberus

Pro Forma Ownership

Valuation

($MM) %Ownership

Existing WaMu (Current Market Cap) $ 11,207(

1)

58.7%

ChryslerFinancial (Tangible Book) 7,387 38.7%

New Raise (Cerberus) 500 2.6%

Total $ 19,094 100.0%

Assuming Subsequent Distribution Cerberus 33.6%

of Shares

by Chrysler Holding: Old Shareholders 58.7%

Daimler 7.7%

Total 100.0%

CONFIDENTIAL


Retail Financing

48%

Operating Lease

28%

Dealership

Financing & Other

25%

Portfolio by Product

% of

$ 75 billion 12/ 31/ 07

ChryslerFinancial: A Leading Auto Lender

Project Olympic

4

Overview

• Leading provider of

financial services for dealers

and customers of

the Chrysler, Dodge and Jeep

brands

– $ 75 billion managed portfolio (Avg FICO: 705)

– Over 2.7 million consumer loans and over

900,000 leases serviced (3.6 million total

customers) with avg. transaction size of

~$ 25,000

– Over 3,000 dealers serviced

– 4,150 employees

• Broad presence across the Americas, with

operations in the U.

S., Canada, Mexico,

Venezuela and Puerto Rico

• Major products are retail loans, leases and

dealership finance plans

– Includes Business Vehicle Finance (BVF)

business with $1.6 billion of

assets which serves

small businesses

• 2008E pre-tax income of

$459 million and

12/ 31/ 07 tangible book value of $7.4 billion( 1)

– Estimated earning asset yield of 8.4%( 2)

U.

S.

83%

Canada

14%

Mexico

2%Other 1%

Portfolio by Region

%

of

$75 billion 12/ 31/ 07

Notes

1.


2.

Assets are originated at

fixed rate

CONFIDENTIAL


Auto

17%

Card

8%

Mortgage

57%

Commercial

19%

Pro Forma 12/ 31/ 07 Managed Loans

% of

$335Bn

Provides Diversification and Capital Strength

Project Olympic

Notes

1.

Excludes OCI from equity

2.

Assumes 2008 provision of

$13Bn

3.

Pro forma for $500 million of

new equity issued to Cerberus

4.

Based on

all balance sheet loans plus securitized credit card portfolio 5

Card

10%

Mortgage

73%

Commercial

17%

WaMu 12/ 31/ 07 Managed Loans( 4)

%

of

$260Bn

• Mortgage assets decrease

from 73% to 57%

• Auto assets represent 22% of

managed loans (5% included

in Commercial)

• Significant capital creation

–$6.0 billion of

capital

created above current

WaMu tangible common

ratio

12/ 31/ 07A 12/ 31/ 08P Mid Case(

2)

PF + PF +

WaMu CF New Raise ( 3)

WaMu New Raise ( 3)

Tangible Equity / Tangible Assets( 1)

6.6% 17.0% 8.0% 5.6% 7.2%

Tangible Common Equity / Tangible Assets 4.3% 17.0% 6.0% 3.1% 5.1%

Capital Above 5.50% TE/ TA ($ MM) 9,026 5,955

Capital Above 4.75% TC/ TA ($ MM) 4,453 1,218

Capital Created Above Current WaMu TC/ TA ($ MM) 5,970 6,822

CONFIDENTIAL


Benefits of

Asset Diversification

0.03 R2 Correlation between Mortgages and Prime Auto

Project Olympic

6

0.00

2.00

4.00

6.00

8.00

Apr-

89 Dec-

90 Aug-92 Apr-94 Dec-

95 Aug-

97 Apr-

99 Dec- 00 Aug- 02 Apr-04 Dec-

05 Dec- 07

Credit Card Mortgages Prime Auto

Historical Industry Charge- Offs

(%)

Sources Moody’s, FDIC

5.10%

1.21%

0.49%

Net Charge-Offs

(%)

Credit Prime

Card Mortgages Auto

Current 5.10 0.49 1.21

1-

Yr

Avg. 4.67 0.26 0.79

5-

Yr

Avg. 5.54 0.13 0.87

10-

Yr

Avg. 5.80 0.12 1.10

CONFIDENTIAL


GAAP EPS Accretion/( Dilution)

$

2009E EPS (Mid-Case) 1.12 2009E EPS (Mid-Case) 1.12

With $4Bn Capital Raise @ $12.70 0 .83 Pro Forma with Chrysler ex Synergies(

2)

0.97

With $4Bn Capital Raise @ $10.00 0 .78 Pro Forma with Chrysler w/ Synergies

( 3)

1.20

% Change vs Standalone 7%

%Change @ $12.70 (26%) % Change

vs Capital Raise @ $12.70 44%

%Change @ $10.00 (30%) % Change

vs Capital Raise @ $10.00 54%

Accretive to Earnings Relative to Equity Issuance

Project Olympic

7

• ~$ 570 millionpre-tax synergy

run-rate potential( 1)

45-55% less dilutive

Notes

1.

Based on funding synergy of

1.5% applied to $38Bn debt. Share of

ultimate funding synergies is subject to negotiations with Daimler

2.

Assumes Chrysler Financial adjusted earnings and 5% net income growth from ’08 plan. $12.70 per share issuance price ( 3/ 25/ 08 market price)

3.

$ 570 million pre-tax synergies taxed at 38%

CONFIDENTIAL


Potential Synergies

Project Olympic

8

• Potential to cross-sell additional products ( e.

g., deposits, mortgage)

– 3.6 million current Chrysler Financial customers

• Opportunity to increase ChryslerFinancial’s penetration rate with lower

cost of

funds and broader product offering

– Current US penetration rate is 41% of

Chrysler Automotive retail sales, while

universe of

potential customers is 92% (excluding 8% cash buyers)

– This 51% penetration rate opportunity equates to over 900,000 annual contract

originations and over $ 25 billion of

annual originations

– Additional opportunities in Canada, Mexico and Puerto Rico

• Access to a network of

over 3,000 dealers (including over 2,500 US dealers,

390 Canadian dealers and 175 Mexican dealers)

– Over 60% of

dealers are multi-franchised; dealer count includes over 400 non-

Chrysler dealers

• Access to other Cerberus portfolio companies

– Cerberus companies currently employ over 250,000 people and have millions

of

customers

• On-going auto asset generation to diversify WaMu origination platform

CONFIDENTIAL


Current Capital Structure

Project Olympic

9

Chrysler Financial Funding

$Bn

Funding:

$5.8 · Bank debt ($ 2Bn) L+400 and ($ 4Bn) L+ 650

· Existing term loans would need to be refinanced at

closing

$28.0 · Bank conduit and ABS facilities

· Chrysler Financial would continue to draw down on these facilities until the close of

a transaction at

which point the facilities would term-out (facilities would liquidate

over 3-

5 years as the assets liquidate, with no capacity for new originations)

- As the securitizations roll off, the Company would require new financing sources

to fund ongoing operations

- Average life of

retail loans and leases is 2.5- 3 years; average life of wholesale

loans is 3 months

$7.4( 1

)

· Tangible equity

Note

1.


CONFIDENTIAL


Project Olympic

rITOTOMMOT WDetailed Pro Forma Financials

CONFIDENTIAL


Pro Forma Balance Sheet

12/ 31/ 07A 12/ 31/ 08P

Mid Case

$ MM WaMu CF New WaMu WaMu CF New WaMu

Goodwill & Other Intangibles 7,675 - 7,675 7,675 - 7,675

AFS securities 27,540 86 27,626 NA NA NA

Loans ( includes HFS) 249,789 39,987 289,776 239,268 NA NA

Other tangible assets 42,909 3,471 46,380 59,520 42,618 341,406

Total Assets 327,913 43,544 371,457 306,463 42,618 349,081

Deposits 181,926 - 181,926 189,855 - 189,855

Unsecured debt 38,958 5,796 44,754 31,938 5,248 37,186

Secured debt 63,852 28,000 91,852 52,346 25,354 77,700

Other Liabilities 14,674 2,361 17,035 8,052 4,344 12,396

Total Liabilities 299,410 36,157 335,567 282,191 34,946 317,137

Minority Interest 3,919 - 3,919 3,917 - 3,917

Preferred Equity 3,392 - 3,392 3,392 - 3,392

Common Equity 21,192 7,387 28,579 16,963 7,672 24,635

Liabilities and Equity 327,913 43,544 371,457 306,463 42,618 349,081

Key Ratios$500MM New

Raise

$ 500MM New

Raise

Loans / Deposits 1.37x 1.59x

Deposits / Total Assets 55.5% 49.0% 62.0% 54.4%

Common Equity / Total Assets 6.5% 17.0% 7.7% 7.8% 5.5% 18.0% 7.1% 7.2%

Tangible Equity / Tangible Assets(

1)

6.6% 17.0% 7.9% 8.0% 5.6% 18.0% 7.1% 7.2%

Tangible Common Equity / Tangible Assets 4.3% 17.0% 5.8% 6.0% 3.1% 18.0% 5.0% 5.1%

Preferred as a % of

Tangible Equity 35.1% 25.9% 25.5% 44.0% 0.0% 30.1% 29.5%

Detailed Pro FormaFinancials

Pro Forma Balance Sheet

Project Olympic

10

• Additional common equity

provides capacity for

preferred

Note

1.

Excludes OCI from equity

CONFIDENTIAL


2008E Pro Forma Income Statement

WaMu New WaMu$MM (Mid Severity) CF Synergies (

1)

with Synergies

Net interest margin 8,829 8

87 570 10,286

Provisions 13,050 4

50 - 13,500

Gross margin (4,221) 4

37 570 (3,214)

Non- interest income 5,779 7

99 - 6,578

Non- interest expense 8,220 7

77 - 8,997

Income before taxes (6,662) 4

59 5

70 (5,633)

Minority interest 305 - - 305

Taxes (2,885) 174 217 (2,494)

Net income (4,082) 2

85 3

53 (3,444)

Plus: provisions 13,050 4

50 - 13,500

Plus: insurance losses - 77 - 77

Plus: taxes (2,885) 1

74 217 (2,494)

Plus: incremental NIM

on new capital raised 18 - - 18

Plus: incremental cost cutting savings - 29 - 29

Subtotal 6,101 1,015 5

70 7,686

Less: normalized provision (500) (310) - (810)

Less: preferred dividends (260) - - (260)

Adjusted earnings before taxes 5,341 7

05 570 6,616

Taxes 2,514

Adjusted net income 4,102

Detailed Pro FormaFinancials

Pro Forma Income Statement

Project Olympic

11

Note

1.

Based on funding synergy of

1.5% applied to $38Bn debt. Share of

ultimate funding synergies is subject to negotiations with Daimler

CONFIDENTIAL


Project Olympic

Chrysler Financial Overview

CONFIDENTIAL



Product Overview: Customer Financing and Leasing

Project Olympic

12

Retail¹ Lease

Portfolio ($ bn) $34.4 $22.0

% of

total 46.0% 29.4%

Origination volume ($ bn) $17.5 $10.5

3-year CAGR (8%) 19%

Penetration rate 28.5% 20.5%

Net charge- off ratio (US) 1.30% 1.09%

Description � Majority of

portfolio is conventional

financing with equal monthly payments up to

72 months

� New and used motor vehicles

� Subvented rates offered via Chrysler

Automotive marketing efforts

� Fixed rate simple interest loans

� Specialized offerings include: delayed

payment options, College Graduate Finance

Plan, Chrysler Financial Plus (balloon note

with buyback option), Farmer Payment Plan

and other niche programs

� Conventional lease program up

to 48 months

—new Chrysler Automotive products only

� Subvented payments offered via Chrysler

Financial marketing programs

� Customer EOT options: return vehicle

(subject to contractual charges), exercise

purchase option (contract residual)

� Customers may be offered lease extensions

on lease- to-retail conversions for loss

mitigation purposes

Customer financing and leasingCustomer financing and leasing

Note: As

of or for the year ended 12/ 31/ 07

¹ Include balloon note financing

CONFIDENTIAL



Product Overview: Dealer Financing

Project Olympic

13

Floor plan Capital loans and Real estate Dealer Rental Car (DRAC)

Portfolio ($ bn) $13.7 $2.2 $ 0.1

% of

total 18.4% 3.0% 0.1%

Penetration rate 74.6% NA NA

Description � Dealer inventory financing

—new and used vehicles —

for Chrysler Automotive and

non- Chrysler Automotive

dealers

� Rates tied to sales volume

and total financing

relationship

� Rates based on either LIBOR

or prime, depending on

dealer relationship size

� Provides dealer with working

capital needs

� Typical capital loan is 60 months —

level monthly principal payments

plus interest

� Some revolving lines offered on an

interest only basis

� Rate is new floorplan rate +

additional margin

� Typical real estate loans are fixed

rate, 20-year amortization with

rate / loan renewed at

5- year

intervals (indexed to 5- year T-bills)

� Financing for Dealer Rent- A-

Car program

� Vehicles are normally used as

service loaners

� Some dealers use program to

run local daily rental

companies

� Various incentives may

include upfront allowances

and guaranteed depreciation

� Dealer pays monthly

amortization payments,

interest and insurance

Dealer financingDealer financing

Note: As

of or for the year ended 12/ 31/ 07

CONFIDENTIAL



Product Overview: Small Business and Fleet Financing

Project Olympic

14

Business Vehicle Finance (BVF) Fleet

Portfolio ($ bn) $1.6 $0.7

% of total 2.2% 0.9%

Origination volume ($ bn) $1.0 $0.8

3-year CAGR 84.0% NM

Description � Retail and lease financing for small

to medium size businesses

� Tailored terms and conditions to

meet customer needs

� Currently integrated with DC Truck

Financial in Chicago for

underwriting, customer service and

collections

� Two primary customer groups —daily

rental companies and dealer in-house

lease companies

� Chrysler Financial receives monthly

payments —simple interest on daily

outstandings plus principal amortizations

on individual vehicles

� Fleet companies manage all customer

contacts and collections

Small business and fleet financing servicesSmall business and fleet financing services

Note: As

of

or for the year ended 12/ 31/ 07

CONFIDENTIAL



Portfolio Statistics by Country

Project Olympic

15

End

of Period On- Balance Consumer Wholesale

Net Managed Sheet Penetration Penetration

Portfolio Portfolio Rate Rate1

U.

S.

· Consumer: Retail (new &

used), Lease $43,990 $28,217 48.1% 75.0%

· Dealer: Floorplan, Capital

Loan, Real Estate, Dealer

Rental $13,117 $6,385

· Small Business: Fleet

financing, Business Vehicle $2,156 $2,156

Canada · Consumer: Retail (new &

used), Lease2

$10,548 $175 81.8% 87.1%


Loan, Real Estate $2,297 $512

· Small Business: Fleet

financing $207 $207

Mexico · Consumer: Retail (new &

used), Lease $1,359 $1,359 48.6% 100.0%


Loan $513 $513

Puerto Rico · Consumer: Retail (new &

used), Lease $252 $252 36.4% 55.5%


Loan $

33 $

33

Venezuela · Consumer: Retail (new &

used), Lease $109 $109 9.9% 96.0%


Loan $

69 $

69

Total $74,650 $39,987 51.0% 77.0%

(

1)

Based on Field Stocks (units)

(

2)

Includes Gold Key Leases held

at OEM

12/ 31/ 07

$MM Portfolio

State

($ billion) Percent

Texas 3.3 12.9%

California 2.1 8.1%

Florida 1.4 5.5%

Pennsylvania 1.2 4.7%

Illinois 1.0 3.8%

Other 16.8 65.0%

Total 25.8 100.0%

Portfolio

State

($ billion) Percent

Michigan 5.3 33.5%

New York 1.8 11.7%

Ohio 1.2 7.8%

Florida 0.9 5.8%

Pennsylvania 0.8 5.2%

Other 5.7 36.0%

Total 15.8 100.0%

Portfolio

State

($ billion) Percent

Texas 1.8 13.8%

California 1.0 7.6%

Florida 0.9 6.7%

Michigan 0.7 5.6%

New York 0.6 4.3%

Other 8.1 62.0%

Total 13.1 100.0%

US Retail Portfolio - Top 5 States (12/ 31/ 07)

US Lease Portfolio - Top 5 States (12/ 31/ 07)

US Dealer Portfolio - Top 5 States (12/ 31/ 07)

CONFIDENTIAL


Project Olympic

Chrysler Automotive Overview

CONFIDENTIAL


12.6%12.9% 13.2%

12.6%

13.1%

14.9%16.0%

17.0%

19.9%

24.6% 24.9%

14.6%

24.0%

25.7%

28.1%

30.6%

33.7%

23.3%

4%

9%

14%

19%

24%

29%

34%

'

92

' 93 ' 94 '

95

' 96 '97 ' 98 '99 ' 00 ' 01 '

02

' 03 '04 ' 05 ' 06 ' 07

* - Includes Jobs Bank

** - Only reflects 8,400 hourly workforce reduction due

to

RTP II.

Salary

Manpower

Hourly

Manpower

Total

Manpower(000’ s Headcount)

45.2

53.6

61.0

21.5

19.1

19.1

' 06 Actual ' 07 Actual ' 08 PF

82.5 *

72.7 *

64.3

**


ChryslerAutomotive –Strong Recent Performance

Project Olympic

16

• Stability in U.

S.

geographic segment share since ’92 relative to significant declines in other big Detroit competitors

• Strong balance sheet with $9.7 billion unrestricted cash

• Broad and diverse dealer base –over 3,000 dealers in the U.

S.

• Strong product line up supported by key new vehicle release –2008 minivan, 2009 Dodge Ram truck, 2009 Dodge

Journey

• Well positioned in growing international geographical segments

• Rationalization of

legacy cost base

GM

Ford

Chrysler

Rationalized cost base U.

S.

Geographical Segment Total (1992 - 2007)

Performance Highlights

CONFIDENTIAL


Project Olympic Chrysler Automotive Overview

17

2007 Actual vs 2008 Plan

Actual

2007

Plan

2008

2008 H/(

L)

2007

Total Geographical Segment Share (%) 12.6 11.5 (1.1 pts)

SAAR (MM of

units) 16.4 15.5 (0.9)

Worldwide Shipments (000s) 2,610 2,344 (266)

Net Revenue ($ Bn) 59.7 58.1 (1.6)

Fixed Cost ($ Bn) 14.5 12.9 (1.6)

EBITDA ($ Bn) 1.6 2.0

( 2)

0.4

OpProfitDA ($ Bn) 2.2 2.9 0.7

Cash ($ Bn) 9.7 7.4 (2.3)

Estimated Dealer Inventory (yr-end) –000s 438 325 (113)

CAPEX ($ Bn) 3.1 3.0 (0.1)

Notes

1.

Preliminary and un-audited financial results

2.

2008 business plan EBITDA of

$ 2.0Bn is unchanged from the original Investment Plan

(

1)

CONFIDENTIAL



FinCo / CarCo Relationship

Project Olympic

18

• ChryslerAutomotive (“ Carco”) provides subvention programs exclusively

through Chrysler Financial (“ Finco”)

• Carco makes

all rate subvention payments ( in the case of

below-market APRincentives) upfront to Finco, while residual subvention payments ( in the case o

f

residual enhancements of

leases) are made over the life of

the lease

– Payments are based upon a guaranteed 1.25% ROA for Finco and are discounted

back at

Finco’s marginal cost of

funds

• Finco carries minimal (0.5%) residual value exposure

– When off- lease vehicles are remarketed, the first 1% of

any gain/ loss (relative to

original ALG estimate at

lease inception) is split 50/ 50 between Carco and Finco

– All losses or

gains beyond the 1% threshold are assumed by Carco

• FinCo benefits from a $1.5 billion cash collateral account which supports

all

unsecured exposures between Carco and Finco

– Cash collateral account is held by Carco and exists solely for the benefit of

Finco

– The main exposure this account supports is the risk of

a significant decline in

residual values (since Finco is relying on Carco for reimbursement of

any residual

losses)

– Even under stressed residual value assumptions, this $1.5 billion account is

expected to be sufficient to cover

all unsecured exposures between Carco and Finco

CONFIDENTIAL


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