Sunday, September 14, 2008

Washington Mutual may also be in trouble

I found several interesting stories on Washington Mutual that makes me wonder if WaMu may also be in serious trouble. The first is this April 16, 2008 Washington Post story:

SEATTLE, April 15 -- Washington Mutual, the nation's largest savings and loan, said Tuesday that it lost $1.14 billion in the first quarter as the struggling economy and flagging real estate values pummeled the bank's borrowers.

The Seattle-based thrift lost $1.40 per share, compared with a profit of $784 million, or 86 cents per share, in the first quarter a year earlier. It was the bank's second consecutive quarterly loss.

Washington Mutual also said it needed to set aside $3.5 billion to cover bad loans in its $250 billion portfolio during the first quarter. The bank set aside less than half as much to cover bad loans in the year-ago period.

With the housing market suffering and the economy slowing, more consumers are missing payments on their bills, the company said.

In early September, Washington Mutual then replaced its CEO Kerry Killinger. WaMu lost nearly 70 percent of its market share this year. Here is Washington Mutual's one-year stock chart:

Finally, there is this September 13, 2008 WaPost story reporting that WaMu is selling some of its branches:

Washington Mutual, facing up to $19 billion in bad home loans and slammed by a 34 percent drop in its stock this week, may sell parts of a nationwide 2,300-branch network to raise capital.

"The only real asset they have that's worth anything to other banks is the deposit base, because of their branches," said L. William Seidman, who was chairman of the Federal Deposit Insurance Corp. from 1985 to 1991. The Seattle-based bank can probably sell branches in New York and Chicago, said Bert Ely, president of Ely & Co., a bank consulting firm in Alexandria.

The biggest U.S. savings and loan, with $143 billion in retail deposits, is headed for its fourth straight quarterly loss. Suitors have walked away because of potential damage to their earnings and WaMu's chief regulator, the Office of Thrift Supervision, has told it to boost risk management and compliance.

On top of those challenges, Fitch Ratings and Moody's Investors Service cut WaMu's debt ratings on Thursday. Moody's reduced the senior unsecured rating to below investment grade at Ba2. Fitch cut its rating to BBB- from BBB, citing a lack of "flexibility" to add capital. Moody's also lowered its long-term deposit and issuer ratings to Baa3 from Baa2 because of WaMu's "reduced financial flexibility, deteriorating asset quality and expected franchise erosion."

Washington Mutual is facing up to $19 billion in losses due to the bad home loans, and is selling part of its branches to raise capital in order to cover their losses. WaMu's credit rating has been cut, making it harder for WaMu to refinance its debt, and raise capital. Looking at how Lehman Brothers has gone bankrupt, Merrill Lynch has been purchased by Bank of America, and AIG is having problems raising money, will Washington Mutual become another Wall Street casualty due to the mortgage mess?

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