WaMu Racing Toward Nowhere

Washington Mutual (NYSE: WM) stock is being dropped like a hot potato all over Wall Street after the company dropped its CEO, Kerry Killinger, on Monday. The stock fell Wednesday for a third straight day. Having lost more than 40% of its value this week alone, Washington Mutual shares are now sitting at their 52 week low of just $2.79 per share. Compare this to the 52 week high of $39.25 to see just how far the company has fallen.

Investors are looking at the huge amount of mortgage debt risk being carried by Washington Mutual, and deciding to get out while it's still possible to get out. With each decline in share price, it becomes more and more difficult for WaMu to find additional capital should the company need to post additional loss reserves.

With the Treasury bailout of Fannie Mae (NYSE: FNM) and Freddie Mac (Nasdaq: FRE), the market mood is decidedly skittish when it comes to those institutions which still have substantial mortgage exposure. Once backed by the strong and growing asset value of the properties for which the debt was issued, plunging real estate prices have turned these debts in largely unsecured commitments. As homeowners see themselves owing more than their property is worth, more and more are defaulting to get out from under the obligation. This, of course, leaves banks like Washington Mutual and their shareholders, holding the bag.

Wachovia (NYSE: WB) shares have also been pounded recently for the same reason. Both companies were champions of the Adjustable Rate Mortgage financing boom during the peak years of the real estate market. At the time it seemed to some lenders as though property values would continue to rise like indefinitely. As calmer heads might have predicted, however, that wasn't to be. Now the most aggressive players are paying for their recklessness. Unfortunately, with the prospect of more large bank failures looming like a shadow over the US economy, it is the taxpayer who will end up paying for the risky practices that were allowed to proliferate in the financial sector.

Washington Mutual's new CEO, Alan Fishman, after just three days on the job, had better take some strong steps to restore market confidence in WaMu's prospects for continued solvency, or he may be facing a very short tenure. WaMu has also announced that, in a seeming admission of guilt, it has agreed to a settlement over the regulatory investigation into its business practices of the last few years. That admission has hardly left investors with any reason for optimism. While it's too early to pick a winner in the contest to be the next federal takeover victim, Washington Mutual can no longer be called the dark horse in the race.

Disclosure: none

Comments

[PeteK:]

It makes me feel like all these troubled banks were run by some high school kids or something. What a pity !!! It's
like drunk driving. Should be punished.

2008 Sep 12 06:28 AM

[Insiderman:]

How ridiculous that you would imply that there are sanctions against WaMu. They signed a memorandum of understanding that essentially required them to do nothing important.

newsroom.wamu.com/phoe...

WaMu Provides Update on Expectations for Third Quarter Performance
-- Provision expected to be approximately $1.4 billion less than
second quarter while company continues to build reserves

-- Long-term credit outlook unchanged

-- Liquidity stable at approximately $50 billion

-- Capital significantly above "well-capitalized" levels

This report showed 7.76% Tier 1 leverage. 6 is good and 8 is grand.

Seems to me you're doing a "Palin" on this stock without position disclosure.

2008 Sep 12 08:37 AM

[tiredofallt...:]

yeh what is this settlement that you are talking about? I haven't seen anything about that anywhere....

WAMU didnt even have to disclose the informal agreement with OTS...

2008 Sep 12 10:32 AM

[Cunning Lin...:]

Seriously, do the morons at Seeking Alpha bother to do any research and/or fact checking. Are they really STUPID enough to think that the stock price went down because WaMu FINALLY got rid of Killinger?

How about you jack@$$es do some actual work for a change. You rbias and lack of knowledge are all too apparent.

2008 Sep 12 11:22 AM

[Kinabalu:]

"While it's too early to pick a winner in the contest to be the next federal takeover victim, Washington Mutual can no longer be called the dark horse in the race"

Merrill Lynch and AIG are both in much worse shape than WM.

2008 Sep 13 06:01 PM

[Neutrino:]

Kina you might be better off playing Vegas. Last we spoke you were gobblin up Jasonc's puff piece on banks. How has that treated you?

You just don't get it do you.

2008 Sep 15 06:29 PM