Time To Bail Out WaMu?

This can't be good.

As I said, we're playing with one arm behind our back since we cannot short individual names. We could use a nice 25-50% gainer right about now. We missed out on Freddie Mac (FRE), we missed out on a nice Research in Motion (RIMM) call, we missed out on Lehman (LEH) - all names we've called out but can't take advantage of on the short side.

For those not familiar, Washington Mutual (WM) is America's largest savings and loan. So now, do we let it fail, do we bail it out (too big to fail?) or do we find a shotgun marriage? Poor Uncle Hank - he has been a busy man. I think they have to arrange a shotgun marriage because funding the $100K FDIC insurance for WaMu is going to empty the insurance piggybank. Hello, Mr Wells Fargo (WFC)? Can I interest you in a blue light special we're running on S&Ls?

Some of our recent posts on WaMu.... it's just a matter of when, not if. The market has spoken.

Comments

[JPDD:]

who's Tim?

2008 Sep 10 01:39 PM

[prescient11:]

Damn, someone beat me to it.

2008 Sep 10 01:40 PM

[VacantHomes:]

Tim apparently has a lot of money if he is able to bail out WaMu by himself.

2008 Sep 10 01:55 PM

[Ishortyou:]

the FDIC is broke unless they get more money somehow... potential buyers probably won't bid unless they get a less than a dollar stock to make an offer because potential bidders are also short of cash, fire selling their junk means more capital raise, portential investors like TPG already hurting, at this point doesnt look too many options on the table, does anyone know any other options?

2008 Sep 10 01:57 PM

[Vox Rationalis:]

Not THAT much money.

2008 Sep 10 01:58 PM

[Egodeus:]

Washington Mutual has enough cash to buy all of it's stocks itself...

2008 Sep 10 02:08 PM

[Socialism c...:]

"As I said, we're playing with one arm behind our back since we cannot short individual names."

Who says you can't? Oh...you mean you can't naked short? Poor baby. That's been illegal for a while now. Try making some legal money!!

2008 Sep 10 02:14 PM

[inthemoney:]

I think it is time, not Tim. LOL.

2008 Sep 10 02:16 PM

[H-Bomb:]

inthemoney,

Thanks for clearing that up.

2008 Sep 10 02:27 PM

[SA Editor M...:]

Sorry, I was clearly obsessed with the Tim Geithner/Lehman issue.
Here, however, it is supposed to say 'Time' (which it does now). Thanks for all those sharp eyes.

2008 Sep 10 02:28 PM

[22thoroughbred:]

WaMu didn't bring in Fishman as a CEO if they intended to take it over, they would have gotten rid of Killinger and said they were "looking for a CEO" you don't take someone away from a job the take over the institution and give it to another bank and leave the new guy hanging, WaMu will NOT be taken over by the FDIC anytime soon, the stock is a good HIGHRISK buy at $2.50, but to expect the FDIC imminently would be a mistake

2008 Sep 10 02:33 PM

[Tom Armistead:]

I bought at 3.70 and again at 2.60. TPG paid 8.75 a share, I have now paid about a third of what they paid. TPG has booked an internal rate of return of 55% since 1985, not including fees, according to the firm's marketing materials.

I did my own homework, WM is well capitalized per their last quarter's report, the price is a fraction of net tangible book value. The OTS has not required additional capital.

WM is a good speculative value play.

2008 Sep 10 04:17 PM

[downtoearth:]

Why all the panic? So what about the option ARMS and the "adjustables"? These loans do not become "problems" unless WaMu makes them a problem. Why couldn't WaMu leave some of those adjustables at their original 4 percent (plus or minus) "teaser" rates for awhile - while they are borrowing from the Fed at 2%, and while we all wait for the effect of the Freddie and Fannie bail-out to lower the rates across the board such that the adjustables can be rewritten or refinanced to conforming fixed (and thereby comfortable, workable) loans. Borrowers will rejoice with this - who wants to lose their home in foreclosure, suffer bad credit such that they cannot purchase a new home or even qualify to rent (since lanlords do credit checks these days). In short, why can't WaMu negotiate their own loans and thereby take them off the "problem loan" list.

What rule or regulation or other concept prevents them from doing that?

I still don't see the reason for all this tabloid-type fear.

I do see a good reason to buy......

2008 Sep 10 04:24 PM

[downtoearth:]

This is a serious question....

If I was WaMu, and had a bank regulator on my back, would I demand that the borrower pay that higher "adjusted" rate - right into his foreclosure and my receivership?..... or would I negotiate to keep the income stream coming for awhile longer - even at that lower rate.

Someone tell me why WaMu cannot adjust its own adjustable loans?

2008 Sep 10 04:31 PM

[Fish Gone Bad:]

I really like Wamu as a savings and loan. The people are quite friendly and it does not cost me a dime to have an account there. I will be quite unhappy if they go under and I have to wait in line to get my money.

Clark Jenkins
FishGoneBad.com

2008 Sep 10 04:31 PM

[Fish Gone Bad:]

I really like Wamu as a savings and loan. The people are quite friendly and it does not cost me a dime to have an account there. I will be quite unhappy if they go under and I have to wait in line to get my money.

Clark Jenkins
FishGoneBad.com

2008 Sep 10 04:31 PM

[Financial C...:]

You guys got it all wrong. WaMu is "well-capitalized..."

2008 Sep 10 04:48 PM

[Ishortyou:]

well the overwhelming oversupply of houses made the house value go down triggering defaults and foreclosures and book value depreciation which requires more capital requirements. So unless the housing market gets better we are talking nonsense, unfortunately this will take time, in the meantime the question is how to survive? I guess is up to the banks to renegotiate with the borrowers to get at least some cash flowing instead of jumping on their throat and putting in foreclosure wich is basically a shot in the head to themselves because this make things worse in regards to housing price, what do you guys think?

2008 Sep 10 05:15 PM

[George Spri...:]

Has anyone looked at the Wamu senior debt maturing in January 2010?
It yields around 70%.

George
quantinvestor.blogspot...

2008 Sep 10 05:35 PM

[User 235322:]

I'm Tim,but i'm not buying this pos for sure!Hey do not disturb me,i do not want to throw my money!

2008 Sep 10 06:20 PM

[Ishortyou:]

the thing that scares me is that IndyMac was also well capitalized and also had the Fed discount window open until the run in the bank was triggered, if the run in the bank is triggered then is game over for WaMu. The other thing is that rating agencies will probably downgrade the debt of WaMu triggering higher payments on it demanding more capital, not so sure but the future looks not that good.

2008 Sep 10 07:34 PM

[Urbane Gori...:]

Please... Leave Wamu alone... I'm tired of moving from one bank to the next like some kind of check-writing nomad.... jegan

2008 Sep 10 08:27 PM

[bafnotrad:]

Everyone talks about level three assets and FAS 157 and fair value accounting, but the true culprit of the banking problem that no one is speaking about is FAS 140, which allowed companies like WAMU to set up QSPE's off balance sheet and continue to lend with assets/loans off balance sheet requiring less deposits and creating a loan machine. This distorted true capital ratios and could have been prevented by better accounting regulation. By the way WAMU has yet to restate earnings for all the phantom income they have booked on their option arm porfolio capitalizing interest that they will never see. Also they haven't filed a Q or a K in almost a year. Nice to see NYSE is doing such a good job policing their listed companies.

2008 Sep 10 09:47 PM

[Mark in SF:]

"Washington Mutual has enough cash to buy all of it's stocks itself..."

What good is borrowed cash? It's all about the assets minus liabilities.

2008 Sep 11 04:30 AM

[Richard Col...:]

Don't you love these writers who come in when the stock is 2.00 a share and tell you to sell. Where was this advise when the stock was 45.00 a share. I want to see articles by Buffet and not by writers who are still trying to pay there bills. My opinoin is the same as most of the comments and that is to buy shares. It's a good gamble.
Daniel Kowkabany

2008 Sep 11 11:08 AM

[kurt walter:]

Having been in the mortgage business for a few years, I can tell you that in 2009, 2010, 2011 lots of ARM loans will be adjusting. WM is in the middle of that mess. .. Instead of ANOTHER bailout. Let the next big financial fail. I want to see what really will happen. We don't allow anyone big to fail so we never see what the result would be. I hear talking heads with the theories on what will happen. But what the heck do they really know? I got a feeling they know very little.

2008 Sep 11 02:13 PM

[downtoearth:]

Kurt: make sure you're holding gold if WM does fail; the feds won't have enough to insure all of the deposits (even the ones they are supposed to insure) ....so the dominoes will start to tumble everywhere...your bank included.

but don't worry...do you really think WaMu will enforce those ARM's and push themselves into bigger losses? ...or will they just negotiate with the ARM borrowers...and collect the same interest income they are collecting now?

2008 Sep 12 12:59 AM

[User 122891:]

"Trader Mark"'s bio revealed that he has neither financial nor professional background in financial statement analysis. How could he come up with "bail out" when he presents nothing to substantiate the claim is beyond any intelligent reader. I would recommend readers to read writer's bio before reading.

Disclosure: I have never owned and have never traded WM prior to this date.

2008 Sep 12 07:52 AM

[Lex Luz:]

BigMike - one reason WaMu can't simply modify its loans is that while they may be servicing those loans, the investors in the various MBS were promised income based on a formula that includes the revenue from the loans AFTER they adjust (the formula also includes runoff, some provision for expected default rate, and plenty more). ALL the investors in any given loan (portions of the cash flows of which might sit in more than one MBS) must agree to the modification. This is one of the big challenges for the servicers. So it's really not as simple as just giving the borrower a pass on the reset.

2008 Sep 12 10:52 AM

[downtoearth:]

Thanks, Lex....but (1) what is an MBS? (2) are you talking about loans which are actually on WaMu's balance sheet - or which they are servicing for others? If WaMu has an obligation to collect more for the investors you are talking about, why would they not also agree to negotiate as they too have a stake in WaMu's default? Why couldn't WaMu just default on those loans and let the investors take back the security (the non-performing loans?) The investors can have them, WaMu can take them off the balance sheet, and look better for the process.... what am I missing here? Again what are "the various investors in the MBS" you are referencing here?

Thanks.

Mike

2008 Sep 13 04:38 PM

[downtoearth:]

Lex: OK...got it now...the Mortgage Backed Securities. These make up 19.190 billion of the 230.160 billion of total loans secured by real estate in the WaMu portfolio (8.34%) (per SEC 8K filed July 22 - Exhibit 99, page WM-9). And which they list in the "available for sale securitues" category. All other option ARM loans are proprietary, and therefore negotiable. 7.1 billion of the 52.9 billion of their proprietary option ARM portfolio will recast in 2009. That is only a 13.42% headache, and I would think manageable. Another 11.8 billion will recast in 2010 - those had better be negotiated unless the borrowers have since taken advantage of the lower rates coming out of the Freddie/Fannie takeover. No...it's not the option ARM circumstance which concerns me. The unknowable real problem here, is in my opinion, whether all the tabloid-type hype about WaMu's "theeoretical" finanacial crisi will casue a "run on the bank". I note with some concern that the net retail depsoits at the bank have been decreasing. Although WaMu stated in its most recent release that the retail deposits were the same as the end of last year (i.e. 143 billion) they neglected to point out that the retail deposits at the end of March '08 were 151.7 billion, then to 148.3 billion in June '08 - people are removing their money lately. I attribute the withdrawals to, likely, the current economy - because the overall rate of decline in the deposits (5.7 percent) seems to pattern the recent increase in the CPI due to, among other factors, the increase in gasoline and commodity prices. And the financial "scare" which seems so prevalent in the headlines now was not as tabloided-ed in the last 6 months.

But I wish the press would start to report the news in a manner which is truly "informational" and not so sensational. With their current stylized writing, they might actually assist in creating a financial crisis which does not now exist to the extent that they portray it.

I wonder, if when TPG pursued their "due dilignece" concerning the WaMu assets, if they took into consideration what I now refer to as the "tabloid-press" factor.

These days, every purchase or re-capitaization should be discounted at least 20% (for this factor).

It would be helpful to our entire economy if just ONE of those writers would sit down and pursue the "real work" - that is, studying income statements and balance sheets...and trends regarding companies - rather than searching, salivating, for the "tabloid".

But they don't; their articles (especially the titles) prove that. They're inherently lazy, they won't do the work - they don't have to: since they can never be sued for their misstatements or hyperbole, they have no motivation to be "responsible" and report financial news in an accurate manner. Too bad.

Disclosure: I own shares in WaMu, and other banks as well.

And tired of reporters and newswriters who won'tdo the "real" work....

2008 Sep 13 05:38 PM

[User 261785:]

Am I the only individual that has not been able to get into the WaMu site this weekend. The WaMu site is down for technical updates all weekend. I am unable to view my accounts. Is this a sign of something or is it nothing?


On Sep 10 01:58 PM BS Detector wrote:

> Not THAT much money.

2008 Sep 14 09:30 AM