Too big to fail? WAMU at $2.01/share, reportedly seeks a buyer

Headlines: The Dow industrials lost 449 points and change today. We are in the eye of the storm.

Washington Mutual shares closed at $2.01, and the thrift is a source of increasing concern to the government, which, according to Alexis Glick of Fox Business News, "cannot afford to let this bank fail." More from Glick:

This morning a source tells me that Washington Mutual, the 6th largest bank and largest savings and loan bank in this country, cannot legally fail...

...We’re talking about risk to the depositor and to the Federal Home Loan Banks of $239 billion. Let me remind you that the FDIC or the Federal Deposit Insurance Corporation has $45 billion. We are talking about a bank with $181 billion of deposits. They cannot afford to let this bank fail.

The New York Times reports WAMU has hired Goldman Sachs to find a buyer:

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 auction several days ago, these people said. Among the potential bidders that Goldman has talked to are Wells Fargo, JPMorgan Chase and HSBC.

Your thoughts? Comments? An update: your blogger has discovered Twitter, and I encourage you to join me, or perhaps even follow me. I'm hoping it's a new way for me to learn more about the L.A. real estate market -- directly from you. Here's my Twitter feed.

Hat tip: Michael Snyder, via e-mail.

-- Peter Viles

Photo credit: Getty Images

Comments

[Bryan Morris]

Is it the twilight of capitalism yet? I think we're all screwed.

[socalinvestor]

There's a great article about the example we are setting to other economies around the world in the NY Times....here's a snippet:

"“For opponents of free markets in Europe and elsewhere, this is a wonderful opportunity to invoke the American example,” said Mario Monti, the former antitrust chief at the European Commission. “They will say that even the standard-bearer of the market economy, the United States negates its fundamental principles in its behavior.”

http://www.nytimes.com/2008/09/18/business/worldbusiness/18rescue.html?_r=1&oref=slogin

[Lou]

What a complete crock of s#$%. Here's a great business model: aggresively give out billions of dollars in toxic mortgages called Option-ARMs, make a killing of fees and commisions, and when they go bad just ask Uncle Sam aka the American Taxpayer to bail you out.

My uncle opened a business once and it failed. He shrugged it off and said, that's capitalism, that's America. I guess my uncle was wrong.

[E]

Enjoying the show folks?

Make yourself comfy...it's gonna be a loooong one.

[MyLessThanPrimeBeef]

In one of the recent James Bond movies, the bad guy could genetically alter his appearance. I wonder if a Hugo Chavez/Fidel Castro spy is not impersonating Paulson.

[Valley Observer]

Why do we think the American example is so great? These massive ups and downs -- over- and undershoots -- hurt millions who are not involved, like my potential retirement income for example. It looks like the Europeans have also forgotten about the Great Depression and become involved in Wall Street's fantasies. The free market religion is good in principle, but in practice it hands the economy over to Wall Street. Wall Street doesn't give a fig about you and me or Main Street. It cares about Lamborghinis for the traders, which doesn't help me -- just because they are making money, it doesn't mean my welfare is increasing. As we see now, increasing their welfare may simply increase my risk.

[annonyed]

That's a good one Beef. Amazing isn't' it, how powerful our government has become and how dangerous.

[dclogang]

I'm going to pull my money out of Wamu and maybe got with BOA?

They seem to be holding their own.

SIGH...

[Robert Whitfield]

With the collapse of so many major financial institutions in recent days, can you imagine if George W. Bush had it his way a few years ago and privatized social security? It would be an enormous disaster. I'm neither a republican or a democrat. I'm proudly independent...pro choice and pro gun.

[MyLessThanPrimeBeef]

Yeah, I had to move some money out of a money market fund today to, gasp, Bank of America for their FDIC insurance.

[gerald]

Memo to remaining banks and financial institutions:

Get as big as you can as quickly as you can. As soon as you become a behemoth you lend to whoever you want:

A homeless guy with a drug addiction? You got it!

An inner city drug dealer? Come right in!

An idiot who thinks housing prices never decline and can't afford the house he is buying? They get to pay less than interest for the house!

Don't you worry, because you just won our "too big to fail" tax-payer money giveaway sweepstakes! Have we got a bailout waiting for you!

[jag]

CIVIL WAR! People don't just sit there and let the government stick it to you again. We need to stand up and put a stop to socialism. Our money should not be utilized to bail out these greedy corporation that got us in this mess. Why isn't anybody doing anything about it?

[S]

Taking your $$ out of WAMU just to take it to another HUGE bank is not the answer. If it is for FDIC reasons ,there are ways to protect your funds. When we give everything to the banks left standing, they will have us in the palms of their hands and call the shots. Pay crap for interest and charge PHENOM fees.

[puckhead]

WAMU will find a buyer. They have a huge deposit base that will be attractive to a buyer that needs capital. The buyer can close the majority of the branches and keep the deposit base. There's waaaaaay too many bank branches around. They are a money pit and most of them need to be shuttered. The buyer will also get relief from the govt when they start buying back securities from banks. That'll be the next step announced by the new administration. BTW, how does John McCain expect to solve this mess if he can't figure out how to send an email? Just asking.

[Erik Olson]

The words Federal and Government are all over this mess, but you blame Wall Street?

"Community Organizers" like Barack Obama co-erced banks into giving out loans to riskier people by threatening them with Community Reinvestment Act charges - playing the race card to break down lending standards.

Congress (read Barney Frank, D-MA) insisted that lending standards be debased - and set up agencies to guarantee any losses. Now they've handed us, the taxpayers, the responsibility.

Wall Street just did what they were told.

The only way out of this mess - get the Feds out of housing market. Shut down FNMA and all the others.

*

You slimeballs who want to know why McCain doesn't email - they broke his fingers in prison. So he has people to do that for him. Do you make fun of all the disabled vets you see?

[waitingforgodot]

Puck (or someone smarter than I am),

As you understand it, is the backstop plan involve an outright purchase of "tainted securities," or something like a loan / exchange of undetermined length?

[waitingforgodot]

btw, Pete, could you please explain why there is such a delay in posting comments? Surely there is a better way.

[Laker]

puck, leave McCain alone. Obama-mama doesn't know it either, unless it comes from Fannie/Freedie/country wide checks.

From the article: "...Washington Mutual borrowed $58 billion from the Federal Home Loan Bank of San Francisco. The Federal Home Loan Bank of San Francisco is losing money. If Washington Mutual were allowed to fail, they would have no protection against the money they lent to Washington Mutual. What does this mean? The government would foot the bill. The government would have to come up with the bulk of the money and pay back the Federal Home Loan Bank of San Francisco...."

My question is, why did the FED bank in Cisco loaned that money to WAMU? Why did the PEG investment fund capitalized WAMU with 9 billion?
If you give money to someone with 200 FICO...Do you actually expect to get paid???

Also, they are talking about the huge assets that sits in WAMU right now...Well trust me, once they get sold to chase or anybody else, and the interest rates that they are paying drops back to 0.025%, everybody will leave them, and all that would be left are the OPTION ARM loans, 2nd mortgages, and HELOCS. ALL three worst ZERO.!!!
WAMU is a huge negative net worth! (of at least $100-300 Billion dollars)

[just ME]

puckhead: Does he really need to? They have staff to take of that.

[just ME]

puckhead: Does he really need to? They have staff to take of that.

[peteviles]

waitingforgodot writes, "btw, Pete, could you please explain why there is such a delay in posting comments? Surely there is a better way."

Thanks, waiting. I moderate almost all the comments myself, and sometimes I have other things to do -- like sleep. I was sleeping when you posted that comment at 10:54 pm last night. I try to keep on top of the comments, but sometimes life -- or even other stuff at work -- gets in the way.

There are a lot of really good blogs that do not moderate comments -- so your comment goes up instantly. The LA Times isn't comfortable without a human safety net moderating comments, and that safety net is me.

Pete

[syscom3]

I wonder if it makes more sense for the govt to make good on most deposits in the bank, and just let it fail?

[puckhead]

Laker,

So if WAMU gets sold to a stronger (sarc) bank, you think that customers will flee? Why aren't deposits fleeting Chase or Wells Fargo since they pay low rates and flocking to WAMU since they pay high rates? In this enviroment, customers want capital preservation not max returns.

Sorry to all about my crack about McCain, although I do not believe for a minute that his injured fingers is the sole reason that he has not figured out email. My mom is about his age and she can't figure it out also. But she is a speed demon on the 10 key.

[puckhead]

waitingforgodot,

I don't know and no one in the govt/FED/SEC knows, which is kind of scary. What I do know is that we can't keep going around trying to put out each fire (Fannie, Freddie, Lehman, AIG etc) as it happens and then wait for the next fire while we sit on our asses. Some type of coordinated intervention of all the central banks will be needed to clean up this mess. Pumping more money into the system will not work because all that money is just sitting on the banks books because the banks do not trust to lend to other banks and the banks themselves feel they will need this money as their assets keep getting written down (thanks FASB for mark to market accounting rules, but that's another discussion). At some point, all of the central banks will need to get ahead of this situation and they'll all have to pony up and take a bite out this s&*! sandwich. In what form will this sandwich be? Who knows.

[Joel]

$33.00 a transaction!!! Has any one ever calculated how much money they make NIGHTLY off overdraft, and insufficient funds fee's from its customers nationwide(the interest alone has to be staggering). So here's to you WAMU!