Washington Mutual (WaMu) Facing Tough Times May Need to Sell Deposits Or Take Other Steps

Washington Mutual, stung from billions in mortgage related losses may be forced to sell its branch and deposit branches in order to raise money to stay afloat, says one analyst.

Washington Mutual is facing increasing pressure after three quarters of straight losses and up to $19 billion of bad loans on its books.  The bank's stock price has declined by 34$ this week.  In addition, Bloomberg reports that many of the credit agencies have lowered their ratings of WaMu debt.

"...Fitch Ratings yesterday cut its rating on WaMu debt to BBB- from BBB, citing a lack of ``flexibility'' to add capital. Moody's Investors Service cut its long-term deposit and issuer ratings to Baa3 from Baa2 because of WaMu's ``reduced financial flexibility, deteriorating asset quality and expected franchise erosion.'' Moody's reduced the senior unsecured rating to below investment grade at Ba2."

WaMu's options include:

  • Selling off its branch network to raise capital.
  • Raising more capital.  This appears increasingly unlikely as the markets continue to deteriorate.
  • Selling itself whole to another entity.  Apparantly JP Morgan was interested in purchasing the company last Spring but was rebuffed.

BestCashCow has reported that WaMu has very competitive savings account rates and cd rates in an attempt to raise more capital from deposit holders.  Expect these high rates to persist until WaMu raises the capital it needs. 

WaMu itself says that is has sufficient capital to keep operating:

"After three days of silence as the stock slid, WaMu yesterday said in a statement that it is ``well capitalized,'' with approximately $50 billion of liquidity from what it termed reliable funding sources. Net charge-offs may increase by less than 20 percent in the third quarter, compared with 60 percent in the previous period."

The decrease in the rate of charge-offs means the accleration in loan charge off is slowing, but it still has a growing number of bad loans on its porftolio.  Plus, as we've seen with housing prices, one quarter does not a trend make.

The company added in its statement that it ``continues to be confident that it has sufficient liquidity and capital to support its operations while it returns to profitability."

Of course, we've heard that from Bear Stearns, Fannie May and Freddie Mac, and now Lehman Bros. 

As a depositor, plan for the worst, which would be the Office of Trust Supervision (OTS) putting the bank into receivership.  WaMu is offering attractive rates and has an easy account opening process.  But if you decide to deposit money, make sure you keep the amount under the FDIC limit.

Sol Nasisi
Sol Nasisi: Sol Nasisi is the co-founder and a past president of BestCashCow, an online resource for comprehensive bank rate information. In this capacity, he closely followed rate trends for all savings-related and loan products and the impact of rate fluctuations on the economy. He specifically focused on how rates impact consumers' ability to borrow and save. He also has authored a wee

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