WaMu may be up for auction

[Manedwolf]

Well over 300 billion in holdings. This is interesting. NYT "report", so grain of salt, always.

Washington Mutual, the struggling savings and loan, has been working on several efforts to save itself, including a potential sale, people briefed on the matter said Wednesday.

Goldman Sachs, which Washington Mutual has hired, started the process several days ago, these people said. Among the potential bidders that Goldman has talked to are Wells Fargo, JPMorgan Chase and HSBC. But no buyers may materialize. That could force the government to place Washington Mutual into conservatorship, like IndyMac, or find a bridge-bank solution, which was extended to thrifts in the new housing regulations.

Citigroup is also considering an offer, but would likely be able to buy Washington Mutual only if it emerged from a receivership, according to a person close to the situation. JPMorgan is maintaining its posture that it will not bid unless it receives government support, according to another person briefed on the matter.

The unsurprising announcement comes as the bank, which has suffered badly from losses on mortgages it had made, continues to stumble. Shares in Washington Mutual fell nearly 10 percent on Wednesday to $2.09; they have plunged 94 percent over the last 12 months. This week alone, investors have been frightened by Standard & Poors cutting of the banks debt rating to junk.

TPG, the private equity firm that led a $7 billion cash injection into Washington Mutual in April, said Wednesday afternoon that it would waive its right to be compensated if the bank sold more shares to raise capital. Our goal is to maximize the banks flexibility in this difficult market environment, TPG said in a statement.

The April deal gave the investing group roughly 822 million new shares, diluting existing shareholders by nearly 50 percent. TPG bought shares for roughly $8.75 each. Those shares have since fallen to $2.14 a share, meaning that the value of the investor groups holdings at Tuesdays close had declined 75.5 percent.

While the bank has a strong deposit base, the uncertainty of the markets and the increasingly poor housing market have increased concerns about Washington Mutuals outlook. The bank plunged into the option adjustable rate mortgage business.

http://dealbook.blogs.nytimes.com/2008/09/17/washington-mutual-begins-auction-to-sell-itself/index.html?ref=business

[Headless Thompson Gunner]

Cool.

[AZRedhawk44]

I'm resisting the urge to say "here we go!" and analyzing appropriately.

WaMu drops as the adjustable rate mortgages come due at their peak, and due to falling home resale prices.  I was under the impression that they weren't really that big of a bank.  More of a little fish.  What's it REALLY mean for us as each bank fails?

Are they all incestuously inter-invested so that they fall like dominoes?

[Manedwolf]

WaMu drops as the adjustable rate mortgages come due at their peak, and due to falling home resale prices.  I was under the impression that they weren't really that big of a bank.  More of a little fish.

 

They're the LARGEST S&L IN THE ENTIRE COUNTRY! With $180 billion of mortgage-related loans!

And assets of $310 BILLION

It would make the 1980's S&L crisis max of $30 billion look like pocket change if they failed.

Are they all incestuously inter-invested so that they fall like dominoes?

Yes. Sovereign, my bank, invested over 600 million in Fannie and Freddie, and lost it.

[AZRedhawk44]

And also, since we've reached the peak of the ARMs coming due, isn't the investment outlook for just about every bank much better?

They will have significant residential real estate to get rid of, but that means new loans.  A 30 year mortgage tends to yield a 100% return on investment for a bank if seen through to completion by both parties.

[Manedwolf]

And also, since we've reached the peak of the ARMs coming due, isn't the investment outlook for just about every bank much better?

They will have significant residential real estate to get rid of, but that means new loans.  A 30 year mortgage tends to yield a 100% return on investment for a bank if seen through to completion by both parties.

Loans to who? They're tightening their credit requirements like Scrooge. Even people with good credit can't get loans without a massive amount down that nearly nobody has. Who are they going to make loans for on those McMansions?

The investment outlook is that all those toxic NINJA loans they were trading back and forth like lit sticks of dynamite are now exploding, and they're left with bum loans where the risky lender, hopelessly upside-down, is tossing the keys and walking away...and lots of houses that are falling into disrepair. Abandoned houses fall apart or get badly damaged when crackheads steal the copper piping. It's an absolute mess. And new home construction is tanking as well.

It's going to get worse before it gets better. A lot worse. A lot of banks are going to fall.

[Headless Thompson Gunner]

I don't know how much domino potential WaMu has.  They appear to be a medium sized retail bank.  Lots of bad mortgages, but I don't know how much farther it goes than that.

Freddie and Fannie had major domino potential.  If either of them fell, they would have taken most of the banking industry down with them.

Most of the really big banks and investments houses are well tangled.  

When Lehman fell, it dominoed into Merrill Lynch and AIG failing too.  Merrill was caught by BoA's last-minute buyout.  AIG's would have really dominoed.  Their failure would have taken out lots of other banks, due to their involvement in the CDS arena.  The Fed caught AIG to prevent that.

The problem at this point is that banks aren't going to loan to each other or anyone else now.  They're all too scared.  Credit was tight before, now it's going to be nonexistent.  We may finally get that recession they've been promising for a year.  Any threat of inflation evaporated this week.

[Manedwolf]

Wait a minute, how are you calling WaMu a medium sized retail bank?

Do you know how large their assets are? See above.

They are NOT small!

Here's a partial list of their holdings:

    * Commercial Capital Bancorp, California, 2006
    * Providian Financial Corporation, California, 2005
    * HomeSide Lending, Inc., Florida, a unit of National Australia Bank, 2002
    * Dime Bancorp, Inc., New York, 2002
    * Fleet Mortgage Corp., South Carolina, 2001
    * Bank United Corp., Texas, 2001
    * PNC Mortgage, Illinois, 2001
    * Alta Residential Mortgage Trust, California, 2000
    * Long Beach Financial Corp., California, 1999
    * Industrial Bank, California, 1998
    * H.F. Ahmanson & Co. (Home Savings of America), California, 1998
    * Great Western Bank, 1997
    * United Western Financial Group, Inc., Utah, 1997
    * Keystone Holdings, Inc. (American Savings Bank), California, 1996
    * Utah Federal Savings Bank, 1996
    * Western Bank, Oregon, 1996
    * Enterprise Bank, Washington, 1995
    * Olympus Bank FSB, Utah, 1995
    * Summit Savings Bank, Washington, 1994
    * Far West Federal Savings Bank, Oregon, 1994
    * Pacific First Bank, Ontario, 1993
    * Pioneer Savings Bank, Washington, 1993
    * Great Northwest Bank, Washington, 1992
    * Sound Savings & Loan Association, Washington, 1991
    * CrossLand Savings FSB, Utah, 1991
    * Vancouver Federal Savings Bank, Washington, 1991
    * Williamsburg Federal Savings Association, Utah, 1990
    * Frontier Federal Savings Association, Washington, 1990
    * Old Stone Bank of Washington, FSB, Rhode Island, 1990

[Headless Thompson Gunner]

Eh.  I guess it depends where you place the dividing line between medium and large.

WaMu's balance sheet has some $300b in assets.  Compared to large banks (what I'd consider large), that's not much.  BoA has $1.7t on their balance sheet.  Citi has $2.2t.

[280plus]

Yes, I'd like to open the bidding at $5 please... 

[Manedwolf]

But neither of those are in trouble, they're more diversified. Over half of WaMu is in mortgages, and probably a good bit of that are toxic ones.

If they failed, it'd wipe out FDIC's cash reserve completely.

[Headless Thompson Gunner]

I doubt regulatory takeover and FDIC protection are likely to happen for WaMu.  Time will tell of course, but I think they're too tempting as a buyout prospect.  They're market cap is so low, and they have so many prime branch locations, somebody is going to snatch them up on the cheap.

[Manedwolf]

The problem at this point is that banks aren't going to loan to each other or anyone else now.  They're all too scared.  Credit was tight before, now it's going to be nonexistent.  We may finally get that recession they've been promising for a year.  Any threat of inflation evaporated this week.

When credit is tight and mortgages are upside-down, houses are no longer ATMs to buy that new Escalade or bigscreen TV or massive deck with stainless BBQ, etc.

Belts tighten.

[MillCreek]

WaMu is also a large employer in the Seattle area.  They have already let a lot of people go from headquarters.  I shudder to think of what it would do to our local unemployment statistics if they go under.

[HankB]

And I have a WaMu CD paying 5% . . . I guess I should be glad I have less than $100k there, so I'm covered by FDIC. (If FDIC runs out of money, .gov WILL put more in.)

[Jamisjockey]

Loans to who? They're tightening their credit requirements like Scrooge. Even people with good credit can't get loans without a massive amount down that nearly nobody has. Who are they going to make loans for on those McMansions?

That happened to us earlier this year. 

[Manedwolf]

Loans to who? They're tightening their credit requirements like Scrooge. Even people with good credit can't get loans without a massive amount down that nearly nobody has. Who are they going to make loans for on those McMansions?

That happened to us earlier this year. 

Happening to a lot of people.

"You want us to put HOW much down? Yeah, we'll get right on that after we win the lottery."

[De Selby]

I'm sure some will throw up their hands and call this a "momentary adjustment" or whatever else they can think of to deny the obvious, just like we all saw when Bear Stearns failed, then IndyMac failed, then Freddie and Fannie failed, then Lehman failed....then AIG was nationalized, and now WaMu is likely to go under as well.

It's entirely realistic that BofA will crumble too.

Something tells me I'm witnessing some severe long-term damage to America here...

[Jamisjockey]

I'm sure some will throw up their hands and call this a "momentary adjustment" or whatever else they can think of to deny the obvious, just like we all saw when Bear Stearns failed, then IndyMac failed, then Freddie and Fannie failed, then Lehman failed....then AIG was nationalized, and now WaMu is likely to go under as well.

It's entirely realistic that BofA will crumble too.

Something tells me I'm witnessing some severe long-term damage to America here...

Long term recession. 

[De Selby]

I'm sure some will throw up their hands and call this a "momentary adjustment" or whatever else they can think of to deny the obvious, just like we all saw when Bear Stearns failed, then IndyMac failed, then Freddie and Fannie failed, then Lehman failed....then AIG was nationalized, and now WaMu is likely to go under as well.

It's entirely realistic that BofA will crumble too.

Something tells me I'm witnessing some severe long-term damage to America here...

Long term recession. 

Depression, even, would not be unrealistic, it seems.

[ilbob]

Loans to who? They're tightening their credit requirements like Scrooge. Even people with good credit can't get loans without a massive amount down that nearly nobody has. Who are they going to make loans for on those McMansions?

That happened to us earlier this year. 

Happening to a lot of people.

"You want us to put HOW much down? Yeah, we'll get right on that after we win the lottery."

how much do you think is a reasonable down payment? until fairly recently, normal mortgages were usually 20%, or 10% and PMI.

couple the almost nil down payments a lot of buyers have been able to get by with, and the extravagant valuations put on the underlying homes, it was a market doomed to collapse.

[Manedwolf]

Loans to who? They're tightening their credit requirements like Scrooge. Even people with good credit can't get loans without a massive amount down that nearly nobody has. Who are they going to make loans for on those McMansions?

That happened to us earlier this year. 

Happening to a lot of people.

"You want us to put HOW much down? Yeah, we'll get right on that after we win the lottery."

how much do you think is a reasonable down payment? until fairly recently, normal mortgages were usually 20%, or 10% and PMI.

couple the almost nil down payments a lot of buyers have been able to get by with, and the extravagant valuations put on the underlying homes, it was a market doomed to collapse.

That doesn't work with the over-inflated prices.

When houses were $100K here in 2000? Sure.

Now that same house is $350K. Small, average house. 20% is $70,000.

Who has that lying around as a first-time homebuyer?

[Headless Thompson Gunner]

Loans to who? They're tightening their credit requirements like Scrooge. Even people with good credit can't get loans without a massive amount down that nearly nobody has. Who are they going to make loans for on those McMansions?

That happened to us earlier this year. 

Happening to a lot of people.

"You want us to put HOW much down? Yeah, we'll get right on that after we win the lottery."

how much do you think is a reasonable down payment? until fairly recently, normal mortgages were usually 20%, or 10% and PMI.

couple the almost nil down payments a lot of buyers have been able to get by with, and the extravagant valuations put on the underlying homes, it was a market doomed to collapse.

That doesn't work with the over-inflated prices.

When houses were $100K here in 2000? Sure.

Now that same house is $350K. Small, average house. 20% is $70,000.

Who has that lying around as a first-time homebuyer?

Then don't buy a $350k house.

The "problem" of high home prices is a self correcting one.  Property values are dependent on the cost of financing.  High financing costs mean lower house prices, and vice versa.  As financing gets costly, housing prices will fall.  In fact, that's exactly what we're seeing right now.

[Manedwolf]

Loans to who? They're tightening their credit requirements like Scrooge. Even people with good credit can't get loans without a massive amount down that nearly nobody has. Who are they going to make loans for on those McMansions?

That happened to us earlier this year. 

Happening to a lot of people.

"You want us to put HOW much down? Yeah, we'll get right on that after we win the lottery."

how much do you think is a reasonable down payment? until fairly recently, normal mortgages were usually 20%, or 10% and PMI.

couple the almost nil down payments a lot of buyers have been able to get by with, and the extravagant valuations put on the underlying homes, it was a market doomed to collapse.

That doesn't work with the over-inflated prices.

When houses were $100K here in 2000? Sure.

Now that same house is $350K. Small, average house. 20% is $70,000.

Who has that lying around as a first-time homebuyer?

Then don't buy a $350k house.

The "problem" of high home prices is a self correcting one.  Property values are dependent on the cost of financing.  High financing costs mean lower house prices, and vice versa.  As financing gets costly, housing prices will fall.  In fact, that's exactly what we're seeing right now.

That is the prices here.

$350k is a small starter house.

$300k is a townhouse.

$200k is a double wide trailer.

There IS no "cheaper houses", unless you want something that is falling over.

The prices have to fall back to where wages can support home buying, since the wages have not really gone up in eight years...only home prices. I agree there. But there is no "Don't buy a $350k house" here. It's just "Don't buy a house"!

[Headless Thompson Gunner]

Then don't buy a house.

Or, don't buy a house there.

If buyers cannot afford the purchase prices, then there won't be any buyers, and prices will fall.  If that isn't happening in your area, then it means that there are in fact enough buyers to support the prices.  At least for now.

Credit is seizing up.  That means financing for the inflated prices just won't be available any longer, and those inflated prices will not be able to hold.  Prices will fall.  This is true for prices of for all major assets, not just houses. 

Deflation.  Crude, ugly, unadulterated deflation.  It's all around us now.