WaMu on the Brink 44 comments
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This is an updated and revised version of an article published earlier today.
You have probably heard by now that Washington Mutual (WM) ousted its embattled CEO Kerry Killinger and replaced him with former Sovereign Bancorp CFO Alan Fishman. You may also have heard is that WaMu has signed an agreement with the Office of Thrift Supervision [OTS] which requires WaMu to provide business plans and forecasts for results, asset quality, capital and business segment performance (Hat Tip: Calculated Risk). WaMu also announced that it has entered into a Memorandum of Understanding [MOU] with the Office of Thrift Supervision [OTS] concerning aspects of the bank's operations, principally in several areas of its risk management and compliance functions, including its Bank Secrecy Act compliance program. In addition, WaMu has committed to provide the OTS an updated, multi-year business plan and forecast for its earnings, asset quality, capital and business segment performance. The business plan will not require the company to raise capital, increase liquidity or make changes to the products and services it provides to customers.
Translation: WaMu may fail.
In announcing the ouster of Killinger, WaMu posted a press release on their website. Note the following statement buried deep in the release:
This is the step that regulators take to prepare the playing field for a potential bankruptcy or takeover. Remember, Washington Mutual is far bigger than IndyMac, which is the largest default we have seen in this credit crisis in the US outside of the GSEs. If the FDIC were to take on Washington Mutual, it would need to have its funding base topped up by guess who -- you, the taxpayer. And remember, Washington Mutual has over $300 billion in assets. If it were categorized as a bank rather than as a saving & loan, it would be America's 8th largest bank.
Regarding the FDIC's "problem list," CNN Money said two weeks ago: According to data released on Tuesday, the list included 117 banks in the second quarter, up from 90 at the end of March. The number has been increasing since the third quarter of 2006, when it hit a historic low of 47. Assets at the problem institutions totaled $78.3 billion in the second quarter, up from $26.3 billion.
WaMu was not on that list; its asset base is too large.
Note the total assets of the institutions on that list is only $78.3 billion or an average of less than $1 billion each. Does this mean that WaMu (or NCC, for that matter) is too big to fail? The evidence is unclear. What is clear is that the OTS feels that there are enough problems at both institutions to put them under special agreements. And it is also clear that the FDIC is focusing on smaller banks. After all, it does not have enough capital to deal with the likes of NCC or WaMu.
[Ed. note: Some comments may refer to the earlier version.]
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This article has 44 comments:
DEMAND TRANSPARENCY IN THE FACE OF FISCAL TYRANNY!
Now in addition, the removal of the "uptick" rule a year ago has brought the agendas out in force to control the short side of the trade. Just look at the short interest since in almost any stock (some exceptions). Cox and the SEC made a huge mistake in removing this rule and it needs to be reinstated. Also remember the rule existed since 1938 to stabilize the markets, until its removal last year. If it "didn't matter" then why did the SEC put it back in place for 10 major financial institutions for a short time this year. It is the responsibility of the SEC to stabilize the markets. They need to put the "uptick" rule back in place. Also if it "didn't matter" they why remove it in the first place. These questions need to be answered by Cox and the SEC.
Your site provides a valuable service but it is being undermined by some writers with questionable ethics. It should be mandatory for writers to disclose their positions in each article posted in this site.
You may lose a few writers (Michael Shedlock for starters…) but everyone will gain in the end.
What a mess.
However, I do not have any financial stake in Washington Mutual, Downey or in NCC.
I am merely pointing out that OTS agreements are typically a warning sign to investors that an institution has problems, the types which lead to bank failure. Rather than burying this fact in the press release, WaMu should have been more upfront about it.
I do not anticipate that WaMu will fail. However, I do think it is an institution that made too many bad loans and is paying the price. Will it fail eventually? Maybe, but I am not saying it is going to fail now.
As for my factual inaccuracy, I have alerted readers to it by amending the post and writing another post about wo is definitely NOT on the FDIC's watch list.
www.creditwritedowns.c...
Edward Harrson
One other comment. The financial services sector is in dire straits regardless of Fannie and Freddie's bailouts. In the US, institutions across the board invested excessively in residential property which was selling at inflated prices. We are now witnessing the consequences of that.
The result has been $500 billion in writedowns to date, hence the name of my site.
www.creditwritedowns.c...
The question is whether these writedowns will continue for the foreseeable future or whether we have hit bottom. I would argue that we have many more writedowns to come due to two factors at a minimum:
1. We are now witnessing a large increase in delinquencies and foreclosures in Alt-A and Prime mortgage classes. These delinquencies and foreclosures are the events that triggered writedowns in subprime.
2. We have yet to feel significant headwinds from the real economy downturn, which will have a knock-on effect on the housing sector as well.
Now, I don't have a crystal ball, so I could be wrong -- in fact, I'd like to be. And there are plenty of smart people who argue the other side. But, the fact remains that the financial services sector is fragile and companies like WaMu, Lehman, NCC, Zions, Fifth Third and others that have suffered the most, are also the companies with the weakest balance sheets and the most problem loans.
My condolences to anyone holding these stocks. I have a close family member who is heavily invested in Fifth Third, so I understand the pain being inflicted.
Edward
Everything's negotiable; everybody in this has something significant to lose; so they will all negotiate, and WaMu will survive.
It's simple math with a "let's be real and fix these problems" attitude mixed in.
And the California and Florida real estate markets will be the first to recover in this mess (they always are; why more people choose earthquakes and hurricanes is beyond me, but they do).
Oh.... and I am long on WaMu.
still long....just wondering ......
In the event WaMu collapses - and I don't think it's a coincidence that the WaMu announcement and the FNM/FRE announcement came on the same day - some straw will be blamed for breaking the bank's back, but they are the authors of their own fate.
I now agree with Cramer that WM not only may close, but that it might be better for everyone if it did.
The problem is the continued deterioration of the housing market - further mark to market write off could eat through the capital cushion necessitating another capital raise, which could wipe out the current share holders.
I wonder if this could be happening in America now. The elitists preach Aramgeddon in American business, banks and industry and then after the stock market gets hammered, BOOM, they make their move. Buying companies for pennies on the dollar. They then get not ony RICH, they get all-powerful, controlling finance and industry, leaving previous stockholders holding nothing but ashes in their hands.
The Pentagon is set to notify the U.S. Congress of the proposed sale, which would be the first of the so-called Terminal High Altitude Area Defense, or THAAD, several people familiar with the matter said.
Maybe the Bush Administration is selling this in order to make up the deficits caused by all of these buy-outs!!! I have no clue why the United Arab Emerits is purchasing this. It is a Muslim Country and would never fight Iran. They have a free-trade zone with Iran and everything there is friendly. I think the UAE is buying this just because they can...and the US is selling it because they have to!!!
Either way...it is a damn shame that we are selling weaponry and high-tech weaponry at that... because our coffers are empty. We have sold some of our Infrastructure...ports... toll roads, etc.
What really bothers me is that this administration, since 2000 has borrowed over $5.1 TRILLION DOLLARS from all of the Trust Funds including the Military Retirement Trust Fund, the Federal Employee Retirement Trust Fund, the Railroad Retirement Trust Fund, the American Indian Trust Funds and worst of all....they have siphoned over $1.4 TRILLION DOLLARS ALONE FROM THE SOCIAL SECURITY TRUST FUND. There is no plan to pay it back and no possible way to pay it back. That is why they pushed for privitization!
Additionally, this administration has borrowed from twelve (12) foreign countries! The highest that we owe are JAPAN (over $600 BILLIION DOLLARS), COMMUNIST CHINA (over $400 BILLION DOLLARS), THE UNITED KINGDOM (over $200 BILLION DOLLARS). ALL OF THESE LOANS ARE BACKED BY HARD AMERICAN ASSETS...LIKE U.S. TREASURY BONDS!!! SO THERE IS A PLAN TO PAY IT BACK...CAN YOU IMAGINE THE INTEREST THAT WE ARE PAYING ON THESE LOANS!!!
WE HAVE BEEN SOLD DOWN THE RIVER, FOLKS!!! NOW WE ARE LEFT TO SINK (NOT OR SWIM)!!! LET US GET SERIOUS ABOUT WHO WE PUT IN THIS WHITE HOUSE...WE NEED SOMEONE WHO HAS THEIR WITS ABOUT THEM...WHO WILL HELP US DIG OUT...NOT PEOPLE WHO NEED "HANDLERS"...BUT PEOPLE WHO HAVE THE BRAINS AND THE WHERE-WITH-ALL TO DO SOMETHING CONSTRUCTIVE!!!
TOO OLD AND TOO PRETTY...DO NOT CUT IT AT THIS TIME AND PLACE!!! LET US BE REALISTIC ABOUT THIS!!! IN A DIFFERENT ENVIRONMENT...MAYBE...... NOT WITH THE U.S. HOLDING ON BY A THREAD!!! THANKS...BUT NO THANKS!!! GOD BLESS AMERICA...NOW!!!
People, don't for a second think that WaMu is immune from insolvency, nor capitalization problems. That kind of mentality, particularly based on investment optimism is premature and irresponsible.
Access to the discount window doesn't guarantee long term solvency, nor future solvency, nor future existence. Rather, expect it to be chopped up, debt split out and equities and depositors most likely obliterated. Remember, there is a shell game happening where the public is the last to know, with zero transparency obligation.
Last I heard FDIC is nearly-bankrupt (or at least invited to the party after the punch is all gone) too.
My advice, take your deposits to a credit union without subprime or Alt-A exposure, and avoid the shell game that banks are playing with solvency -- as the small guy, you all but certain to be burned without consequence.
I'd like a bailout for the coupon I had that expired on my cup of coffee please!
THE DISCOUNT WINDOW NEEDS A DRIVE THRU!!
Anyway, last time I checked, the only age qualification in the constitution for being president is being too young. Now, as far as being too pretty or too ugly, Clinton used to be kinda pretty, but Kerry? Holy crap! He is one ugly human being.
On a serious note, do you really think socialism is the right path? In spite of not so subtle references to John Kennedy and Camelot, Obama's acceptance speech seemed to pose this question: Ask not what you can do for your country. Rather ask what your country can do for you.
Now, about WAMU, I'm long.
With BSC, FRE and FNM the senior debt holders benefited.
George
As far as you comment "too old and too pretty do not cut it," I hope you are not referring to McCain & Palin, therby implying that Obama is America's hope. FAR FROM IT, BABY. Neither Obama nor McCain have America's best interests at heart. The one true patriot, Ron Paul, was drowned out by our Marxist controlled press.
Jim Rogers recently said of the federal governments takover of Fannie & Freddie that "America is now more Communist than China." He said the takeover is WELFARE FOR THE RICH (at the expense of us hardworking, taxpaying citizens). God help America. We need a return to Constitutional government, freedom and morals. And we need to end the overseas wars and the war against the American citizens.
WM stock has dropped 50% in 2 days. Another article on alpha mentioned that about the quarter of the market cap of Wamu is on loan to the shorts.
seekingalpha.com/artic...
It does look like some-entity is pushing Wamu off the cliff. It is possible that this entity is hoping to engineer a crisis of confidence and buy Wamu for pennies (like JPM did to Bear-Stearn).
There is no visible ringleader such as Ackman or Einhorn in this case that I am aware of. Ackman's motivation on MBI was the profit on CDS which he held on MBI's debt, which was huge. TV commentators today were talking about Lehman's spreads as well as WaMu's. It was my opinion that the CDS spreads on the monolines were manipulated concurrent with the short-selling attack.
WaMu asserts they have adequate liquidity, always a question in the face of this type of attack.
TPG bought at 8.75, my next point to average in is 2.19, which is 1/4 of what the smart money paid.
On Sep 10 08:04 PM E Nuff Sed wrote:
> This thread has almost completely degenerated into useless political
> rhetoric of left vs. right. One last try before I move on ....<br/>
>
> WM stock has dropped 50% in 2 days. Another article on alpha mentioned
> that about the quarter of the market cap of Wamu is on loan to the
> shorts.
> seekingalpha.com/artic...
>
>
> It does look like some-entity is pushing Wamu off the cliff. It is
> possible that this entity is hoping to engineer a crisis of confidence
> and buy Wamu for pennies (like JPM did to Bear-Stearn).
On Sep 10 06:58 PM Eagle-Chief wrote:
> Bonnie - good points about how the government has spent us into bankruptcy.
> And yes, we need politicians with brains, but more so, with morals
> and a conscience. Politicians who will put the good of the country
> above their own self interests.
>
> As far as you comment "too old and too pretty do not cut it," I hope
> you are not referring to McCain & Palin, therby implying that Obama
> is America's hope. FAR FROM IT, BABY. Neither Obama nor McCain have
> America's best interests at heart. The one true patriot, Ron Paul,
> was drowned out by our Marxist controlled press.
>
> Jim Rogers recently said of the federal governments takover of Fannie
> & Freddie that "America is now more Communist than China." He said
> the takeover is WELFARE FOR THE RICH (at the expense of us hardworking,
> taxpaying citizens). God help America. We need a return to Constitutional
> government, freedom and morals. And we need to end the overseas wars
> and the war against the American citizens.