WaMu and More: Uninsured Depositors Begging for Trouble 47 comments
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Anyone with uninsured deposits (those exceeding FDIC limits) at Washington Mutual (WM) is begging for trouble.
If you work for a corporation that has its payroll or large corporate account (above the FDIC limit) at WaMu and you want to get paid, you better get this message to corporate headquarters right away: WaMu Slumps as Gimme Credit Cites Liquidity Concern.
Washington Mutual Inc. tumbled for a second day in New York trading after Gimme Credit LLC said unsecured creditors were "pulling funds'' from the biggest U.S. savings and loan. Washington Mutual disputed the report.
Gimme Credit analyst Kathleen Shanley cited a decline in federal funds purchased and commercial paper to $75 million from $2 billion at year-end, which Washington Mutual reported this week in its second-quarter results. Securities sold under agreements to repurchase dropped to $214 million from $4.1 billion at the end of 2007, she wrote.
Washington Mutual, known as WaMu, reported a $3.3 billion second-quarter loss on July 23. Rising delinquencies forced the Seattle-based company to boost provisions for bad loans. While WaMu said it has enough capital after raising more than $7 billion earlier this year, Shanley said liquidity remains a concern.
"We won't use the phrase 'run on the bank,' but we would be remiss if we did not observe that many creditors have quietly been pulling funds," wrote Shanley, based in Chicago. Their actions are "presenting an increasing funding challenge," she wrote. Gimme Credit is an independent research firm serving corporate bond investors.
Run On The Bank?
I do not know if there is a run on WaMu or not. What I do know is that if you are reading this and are above the FDIC limit, and you don't immediately do something about it, then you you have no right to complain if WaMu goes under and you lose every penny above the FDIC limit. Sheila Bair seems proud of saying only 13% of troubled banks fail. However, even if one accepts that number, it makes no economic sense to take risks when there is nothing to gain and everything to lose when one is over the FDIC limit.
Unusual PUT Activity
My friend AJ alerted me of unusual PUT activity on Washington Mutual on Thursday.
AJ writes: "Someone thinks WM is going under. 35,000 Aug. put contracts traded at the 3 strike today, and 12,000 Sept. PUT contracts at the same strike. Both dwarfed open interest, so they're mostly new positions. This reminds me of activity in Bear Stearns in March."
Here is a dynamic table of options on WaMu:.
(click on chart for sharper image)
In case you are not familiar with the term, PUT buyers are betting on or protecting against share price declines. This is heavy activity at the strike discussed. The above table is from Thursday.
Washington Mutual debt protection costs jump
Action in Credit Default Swaps [CDS] show a large as well as increasing chance of bankruptcy at WaMu. Reuters is reporting Washington Mutual debt protection costs jump .
Credit protection costs on Washington Mutual rose sharply on Friday, a day after an analyst said some creditors reduced their exposure to the largest U.S. savings and loan.
The cost of protecting [$10 million of] Washington Mutual's debt for five years rose to $1.85 million on an upfront basis, plus $500,000 in annual premiums, up from about $1.35 million plus $500,000 annually on Thursday, according to a trader.
Not Just WaMu
By the way, I am not just talking about WaMu here. Any bank whose share price is in the single digits is at extreme risk. Any bank whose share price is under $5 is at risk of imploding overnight. Here is a partial list:
Washington Mutual (WM)
Corus Bank (CORS)
Bank United (BKUNA).
National City Corporation (NCC).
If you have money above the FDIC limit at any of those banks, you better do something about it.
There is roughly $6.84 Trillion in total bank deposits. $2.60 Trillion of that total is uninsured.
Just make sure none of that uninsured money is yours.
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This article has 47 comments:
i want you to read this from the FDIC:
FDIC learns it ignores bloggers at its peril
San Francisco Business Times - by Mark Calvey
Wednesday, July 23, 2008 - 1:13 PM PDT
The federal agency insuring bank deposits learned that it can't afford to ignore the blogs following its seizure this month of IndyMac Bank, the largest bank failure since the 1980s.
"The blogs were a bit out of control," Sheila Bair, chairman of the Federal Deposit Insurance Corp., told the San Francisco Business Times after a speech in San Francisco this week.
That's putting it mildly. Following the FDIC's takeover of IndyMac on July 11, widely followed blogs were speculating on bank runs on some of California's largest banks based on nothing more than people waiting for their branch to open or large deposits moving between financial institutions.
The FDIC plans to pay closer attention to the blogosphere in the future.
"We're very mindful of the media coverage and blogs in controlling misinformation. All I can say is were going to continue to stay on top of it," Bair said. "The misinformation that came out over the weekend fed a lot of depositors' fears."
The FDIC also plans to begin airing public service announcements as part of a public education campaign on the nation's deposit insurance program.
Although Bair declined to disclose financial institutions on the agency's troubled-bank list, she said most institutions on the list will survive. Some, though, may decide to team up with healthier institutions. Historically, only 13 percent on the troubled banks list actually fail, she said, adding that disclosing who is on the troubled list would likely boost the failure rate from 13 percent to 100 percent as customers pulled deposits.
Many are watching how some of the nation's largest banks will cope with their mortgage-lending woes, including Washington Mutual (NYSE: WM), Wachovia (NYSE: WB) and Cleveland-based National City (NYSE: NCC).
"These are challenging times for a number of institutions large and small," Bair said. "We've worked with them as their primary regulator. They've raised a lot capital, they're getting their loan loss reserves up. They're doing everything they can and should do."
"The capital is there to absorb the losses," she added. "Some will have some bad quarters, but still overall they're quite solvent, healthy institutions, and they'll get through this."
sanfrancisco.bizjourna...
You may make a few dollars with your short positions but your credibility is being ruined by not being candid of your intentions.
If you think credibility is not important then ask yourself why those banks are being shorted and you may realize there are things more valuable than money…
Good luck with your short…
I have reported this blog to WM, to the SEC, and to the FDIC.
i suggest everyone else do the same.
Yes, be smart and be insured. NO! Doubt be an idiot (Schummer-like) and create hysteria.
My take is the idiots who are long this stock would rather stick their head in the sand than hear anything negative.
The overselling of the stock in the past two days seems to guarantee a short squeeze if the bank isn’t seized by the FDIC this week (which isn’t as sure as you want people to beleive).
I hope your bets are covered…
As for “seeking alpha” editors: Someone needs to realize, the reputation of this site is being jeopardized by one writer who doesn’t bother to disclose his biases.
It is stupid...just look at what happen to IndyMac.
money.cnn.com/2008/07/...
Hopefully this news will be all over the place on Monday to start the short squeeze windfall.
A system built on ignorant confidence is a "con" game. Any wonder it is unstable?
--^^^^___
He isn’t just telling retail depositors to withdraw WM funds-
He is ordering all workers to tell their bosses that they should Immediately change from WM into another bank for payroll!
He is flat out trying to scare corporations and workers that use WAMU for payroll purposes into leaving WAMU for fear that they won't get paid!
He is stating as fact: that if you use WM for payroll you won’t get paid!
This goes beyond the pale- it is entirely unacceptable.
Seeking Alpha needs to pull this piece of trash.
seekingalpha.com/artic...
Not everyone thinks what Senator Schumer did was wrong. Some think we need more Schumers.
If you really really thought WM was going to be fine, and wanted to invest in it...than you should welcome every drop as a windfall of profits in the future. If you are pissed because you have rode this loser down, don't blame others for your losses. These companies got fat by selling toxic waste into our economy for years. I'm not going to cry if there are a few less banks at the end of this mess.
This country doesn’t need anymore bank runs.
The economy doesn’t need more bank failures.
This country doesn’t need to see millions and millions of depositors waiting in massive lines because they are afraid to leave their funds in banks.
The truth is- if depositors don’t flee (run) then the banks won’t go under.
If depositors run on any bank en masse then that bank will fail.
No bank is immune to a run- and to purposefully call for (or cause) a bank run is at a very minimum instigating chaos- and it is also perhaps illegal.
Enter your comment here
I, for one, appreciate the article. We need more people raising the red flag about poorly run financial institutions, and we all need to be aware that not every bank is safe. Far to many people are at risk, and do not know that they are. There is no reason to take any risk at all for the paltry amount of interest these banks will give you on checking account or CD. Leaving your cash in any institution with even a hint of a problem, is absolutely foolish.
The article is important, and trying to ignore the facts is idiotic.
Let's do an experiment. Let's all start saying that JPM, or BAC or WFC is going out of business and call for everyone to go get their money or they will lose it.
As I've already said, not everyone thinks that what Senator Schumer did with IndyMac was wrong. A lot of us think he was a canary in the coal mine and wish more people in the know would alert us to poorly run companies that represent a risk to our capital. Again, read carefully, IndyMac was going out of business and Schumer gave us a heads up.....he did not cause them to go out of business.
The only people crying here are those who made a bet on this stock or others like it, and lost.
To loan out money obtained from CDs is honest, to loan out money from demand (e.g. checking) accounts is DISHONEST.
Besides dishonesty, the boom-bust cycle has been traced to fractional (fraudulent) reserve banking. Read Murray N. Rothbard and von Mises for details.
In the case of WM people seem to be pricing this like every loaan in whole catagories willl go default and be worthles, yet people like me and many of us, continue to pay our bills and work and live.
Valuing WM as worth 4 Billion? Come on, that is just rediculous. I understand the math, the posssibilities of a run, the lack of confidence and hysteria atm, but this is getting stupid.
We willl have a few quarters of bad results along with more oof the same building reserves.
That doesn't mean that every loan is going bad. It is a result of the Reserve requirements tightening. That is the condition every bank, esp those that borrow from the Fed makking it extremely difficult they will go under, has to abide by atm.
2 years from now I will be surprised if I haven't made 400-1000% gain imo. BTW I am long WM...LOL
Many times I have seen SeekingAlpha articles full disclosure, but it would have been nice here too.
Be stupid or an idiot. But the above are facts.
if they don't, recent shareholders can make a few bucks. Those who have held their shares for a long time, sorry.
Mish tells it as it is, as always.
Here's a little law: perfectly legal to shout fire in a crowded theater when the theater is on fire. In fact, in some situations you may have a duty.
My bank, now called TD Commerce, told me that my checking and savings accounts were each insured up to $100,000, which is a lie.
Here's another one: major US commercial and investment banks are carrying hundreds of $billions in assets on or off their balance sheets that may be worth much less than they have written. Think that's manipulation? Sue me and let them prove otherwise in court.
DISCLOSURE: I HAVE PUT OPTIONS ON MANY MAJOR FINANCIAL INSTITUTIONS BECAUSE I DON'T BELIEVE THEY ARE ADEQUATELY CAPITALIZED.
So sorry if you can't face the truth. Just get your news from television you'll sleep ok.
atlanta.bizjournals.co...
So take everything you read in the news/media with a grain of salt and realize everyone's got an agenda to push....
I dont want to see anymore banks go under and WaMu with 50 billion in capital is solid- CITI has reported far worse losses, with more expected, but I don't hear people beating them up and down with articles like this jack ass wrote.
When you mention specific companies you should disclose if you are long or short or have no interest in them.
Finally, have you, Mish, done anything to complain to the SEC about all the firms that are on the Threshold List for more than 30 days?
Otherwise he would have posted the rest of the article he was qouting, rather than cherry picking the worst part, knowing that most people don't bother reading past the headlines, much less follow the link to see if there is any data that might balance out the article and Shedlock's anonymous joker "AJ".
The rest of the story;
<i>``As we stated publicly months ago, WaMu funds all of its business through its banking operations and does not rely on commercial paper,'' the company said in an e-mailed response.
Cash Infusion
Chief Executive Officer Kerry Killinger has said the $7 billion cash infusion led by TPG Inc., coupled with plans to save $1 billion annually by trimming the mortgage business, gives the lender enough money to ride out the U.S. housing slump. The decline in federal funds purchased on WaMu's balance sheet may be the result of the company using cash to prefund short-term maturities and not creditors withdrawing money, which suggests it didn't need to borrow in the Fed Funds market, WaMu said.
WaMu slid 62 cents, or 13 percent, to $4.03 at 4 p.m. in New York Stock Exchange composite trading. The stock fell 20 percent yesterday and has lost 90 percent of its value in the past year.
Some 335 million WaMu shares changed hands, more than eight times the daily average over the past year, according to Bloomberg data. The stock has moved at least 10 percent nine times in the past three weeks.
Credit-Default Swaps
Credit-default swap sellers demanded 14 percentage points upfront and 5 percentage points a year to protect WaMu bonds from default for five years, up from 7.3 percentage points a year yesterday, according to CMA Datavision.
That means it would cost $1.4 million initially and $500,000 a year to protect $10 million in bonds. Yesterday, that would have cost $730,000 a year without an upfront payment. Protection sellers start demanding upfront payments when the risk of an imminent default increases.
Credit-default swaps were conceived to protect bondholders against default, and pay the buyer face value in exchange for the underlying securities or the cash equivalent should the company fail to adhere to its debt agreements.
Analysts at Piper Jaffray Cos., Merrill Lynch & Co. and Friedman Billings Ramsey Group Inc. said after WaMu's earnings report that it may need to raise more cash. According to a clause in the TPG agreement, if WaMu raises more than $500 million in equity at less than $8.75 a share within 18 months, it must compensate TPG for the difference.
Standard & Poor's said WaMu has the liquidity to meet obligations without raising more funds through 2012. Analysts at Lehman Brothers Holdings Inc. and UBS AG also said the company should have enough capital.
To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net
Last Updated: July 24, 2008 17:34 EDT </i>
FYI: you CAN have more than 100K at one bank!, ans still be FDIC insured.
for example:
a couple can have as much as 400K in one bank, although you would need to move the interest monthly out.
100K = 1 CD in husband name with wife as POD
100K = in wife’s name with husband as POD
200K = a money market in JOINT names
its ALL insured by FDIC ( except any interest accrued)
So if you wanted to do it like this you would also have to have the interest from the CD’s going back to the money market, and on a monthly basis move any amount in the money market to another bank. But it can be done.
Other way would be to make each CD just under 100K ( to cover any monthly interest) and keep the money market at around 150K to give time to accumulate to a point you would want to move the excess funds, as interest is moved from the CD’s to the money market.
check fdic.org
BTW: I did move funds from Wachovia just to be in the FDIC limits but still bank there.