Washington Mutual (WaMu)

WaMu fails, government steps in

Jim Kim — Fri, 26 Sep 2008 08:04:11 -0400

Washington Mutual, even with Goldman Sachs working on its behalf, ran out of time Thursday. Things had deteriorated to the point that the FDIC had no choice but to step in. They seized the thrift in what amounts to the largest failure of a financial institution ever. They then sold much of the company to JPMorgan--buyer of last resort?-- for $1.9 billion. That will create the largest retail bank in the country, surpassing Bank of America, according to the Washington Post. The FDIC acted to protect WaMu's assets and not drain the government's insurance funds. WaMu, in the end, had degenerated into a toxic company that no one else would touch on its own. Depositors were getting antsy, and the bank's bond rating had plummeted. It couldn't fund normal operations. So who's next? The dominoes keep falling.

For more:
- here's a Washington Post article

No bidders for Washington Mutual

Jim Kim — Thu, 18 Sep 2008 21:43:08 -0400

Goldman Sachs is staging an auction, but guess what? It's doubtful anyone will show up. The competition for Washington Mutual has so far failed to attract any bidders, which is not really a surprise. Goldman had been hoping that Citigroup, JPMorgan Chase or Wells Fargo would show some interest. TPG has waived its rights to be paid for any dilution, but that does not seem to be helping. The big issue, of course, is Washington Mutual's portfolio of troubled mortgages. Fred Cannon, of Keefe, Bruyette & Woods, tells the Financial Times that WaMu's franchise and retail branch network on the West Coast would be attractive, but any buyer might have take hit up to $37 billion. So what are the options? If the bank could offload the bad debts--the RTC-like entity may come just in time--it would likely find a buyer for the good assets.

For more:
- here's the article

Who's next to crater? WaMu?

Jim Kim — Wed, 10 Sep 2008 21:20:43 -0400

The spotlight shifted a bit from Fannie Mae and Freddie Mac right back to Lehman Brothers, leaving little room for others. But the New York Times managed to squeeze in Washington Mutual, whose stock has also been in free fall. It now hovers around $2.30 a share. Recall that TPG invested at more than $8 a share. So this is Lehman Brothers all over again in that its CDS spreads have widened, deal talks have fallen through and losses have mounted. Standard & Poor's cut its credit ratings this week, as well. The consensus is that WaMu has a pitifully weak portfolio of mortgage assets right now. Options ARMs face a wave of resets over the next two to three years. Investors are right to question the future.

For more:
- here's the article

What's up with WaMu?

Jim Kim — Tue, 02 Sep 2008 21:13:29 -0400

Bloggers have noticed that Washington Mutual is now offering 5 percent on certificates of deposit. That may draw some assets, but it raises issues for some. Mish's Global Economic Trend Analysis says this: "WaMu is paying 5 percent on CDs at a time the Fed Funds Rate is 2.0 percent and the discount rate is 2.25 percent. Where can WaMu invest money safely and return 5 percent? The answer is nowhere. It is a moral hazard that WaMu can even offer CDs at 5 percent with FDIC guarantees." You really have to wonder how they're doing this. The same post also notes that prices for WaMu's credit default swaps are going through the roof. The big thrift certainly has not turned the corner.

For more:
- here's the item

Related Articles:
Tough times at WaMu
The future of WaMu?

Washington Mutual lays an egg

Jim Kim — Tue, 22 Jul 2008 17:53:52 -0400

Things were looking good for much of the commercial bank sector this week. The upside surprises from the likes of Citigroup, Bank of America and Wells Fargo were welcome news. Unfortunately, Washington Mutual just joined Wachovia in raining on the parade. WaMu, the big thrift, reported a loss of $6.58 a share. That figure excludes the effects of a one-time charge of about $3.24 a share to cover the cost of raising capital in April. Excluding that, it lost $3.34 a share versus expectations of a $1.05 loss, so this is a pretty awful quarter. The results reflect a hike in loan loss reserves of $3.75 billion. The bank did say it thinks 2008 will be the peak year for this loan loss reserve hike--which may be a bad omen for the next two quarters. The bank also announced that it intends to save $1 billion; it will start by denying CEO Kerry Killinger annual incentive payments this year. That will not likely console many. You have to wonder about his future.

For more:
- here's the release

Private equity deals of the year

Jim Kim — Wed, 09 Jul 2008 09:56:39 -0400

TheDeal.com offers its annual private equity Deals of the Year. This year's list has a different flavor to it. Until recently, of course, the industry was booming on easy credit. But even in this environment, there are some notable deals going down. Alltel's $27.5 billion LBO "defied all odds by closing amid the banks' disarray, and subsequently letting its sponsors execute a flip to Verizon Wireless within months." In the largest LBO, Nordic Capital and Avista Capital Partners agreed to buy Bristol-Myers Squibb Co.'s ConvaTec unit for $4.1 billion; Bristol-Myers emphasized deal certainty in running its auction. Some deals on the list are notable for their uncertain prospects: TPG's deal with Washington Mutual may "prove to be a blunder." The value of the TPG's investment has certainly fared poorly.

For more:
- here's the package