WaMu tells investors it's A-OK; bond raters beg to differ

With financial companies, denying that you have a problem sometimes makes investors even more wary than they otherwise might have been.

But with its stock in a free fall this week, Washington Mutual Inc. may have figured it had nothing to lose: After markets closed Thursday the Seattle thrift issued a statement insisting that it wasn’t facing a financial crisis, and implying that it was confident enough about its outlook to set aside less for loan losses this quarter than in the second quarter.

In an unusual update on its finances, WaMu said it expected its capital levels at Sept. 30 to "remain significantly above the levels for well-capitalized institutions," and that the firm "continues to be confident that it has sufficient liquidity and capital to support its operations while it returns to profitability."

Yet within hours of the company’s statement Moody’s Investors Service and Fitch Ratings both downgraded WaMu’s credit ratings yet again. (As Clare Booth Luce once said, "No good deed goes unpunished.")

WaMu’s stock has fallen to multiyear lows this week on fears that further mortgage losses could drive the company into insolvency or a forced takeover. The shares fell as low as $1.75 Thursday, but rebounded late in the session (before WaMu’s statement) to close up 51 cents, at $2.83. The stock still is down 34% from last Friday and 79% this year.

The company on Monday ousted its chief executive, Kerry Killinger, after three quarters of losses stemming from surging mortgage defaults. He was replaced by veteran banking industry executive Alan Fishman of Meridian Capital Group.

"Short sellers" who bet on falling stock prices have been hammering WaMu: The number of shorted shares rocketed from 274 million in mid-July to 382 million as of Aug. 29, according to New York Stock Exchange data.

In Thursday’s statement, WaMu said it expected to set aside about $4.5 billion for loan losses in the current quarter, down from $5.9 billion in the second quarter. The loss provision, while smaller, would be almost twice what WaMu actually expected to charge off in the period, it said. So its total loan loss reserve should grow to $10.3 billion by Sept. 30 from $8.5 billion at June 30, the thrift said.

As for its capital cushion, WaMu said:

The company's tier 1 leverage and total risk-based capital ratios at June 30, 2008 were 7.76%, and 13.93%, respectively, which were significantly above the regulatory requirements for well-capitalized institutions. The company expects both ratios to remain significantly above the levels for well-capitalized institutions at the end of the third quarter.

But the market clearly doesn’t trust WaMu -- otherwise, the stock wouldn’t be where it is.

Credit-rating firms don’t have much faith, either. Moody’s on Thursday cut WaMu’s senior unsecured debt rating to the "junk" level of Ba2, from Baa3.

Moody’s said it acted because WaMu faced "reduced financial flexibility, deteriorating asset quality and expected franchise erosion." The bond-rater said it expected WaMu to report "future quarters of large losses."

WaMu, getting in the last word, then issued another statement saying that Moody's move was "inconsistent with the company's current financial condition."

Photo credit: Ted S. Warren / Associated Press

Comments

[Borat]

Waa waa weee waaaaa

[Krish]

A friend of mine who is going through WAMU foreclosure proceddings found out that he is in one without receiving any notice. Then, he received a letter which states WAMU will help in a Home Preservation Program. When he called the number, he was told that he is in foreclosure and that he has 30 days to come up with a large sum to take it out of the foreclosure. Since he does not have any equities left, he is thinking to walk out. If WAMU does not take care of their customers, a lot will walk away. Then where WAMU will be?

[David E. Connolly, Jr.]

Wow, I hope Paulson isn't thinking about bailing out Lehman, or anyone else, unless it is out of his own pocket. Henry Paulson can not keep putting future generations of Americans into deeper debt to bail out Wall Street without a referendum on the matter. Forget asking congress for permission to spend our money- it has gone way beyond that. WE need to be consulted before any more money goes out. This whole precedent of tax payer dollars bailing out, count them, THREE private corporations now, to the tune of what? Nobody knows what it will cost us to bail Fannie, and Freddie, but if they either own or guarantee just under $6 trillion in home mortgages, and just 10 percent of those fail, which isn't difficult to imagine these days.. Well, you can do the math.

[William H]

WaMu specifically addressed the downgrades from both of these firms. They are based on a general fear in financials and not on real WaMu data. This article is touching on the side of socially irresponsible reporting. The information WaMu released today can be taken as nothing but positive. Everything else from now over the past 2 months have been unsubstantiated, fear or greed-driven information. This 3rd quarter loss is a positive as it was less than everyone expected. WaMu is in great shape with 50,000,000,000 in free capital to help during this crisis. Foreclosures were at their highest last month, but delinquencies rates declined, which indicates that bad loans have moved to foreclosure and a decline in predicted foreclosures is probable. Freddie and Fannie will soon be instructed to help stop foreclosures, to make getting home loans easier, and to get these loans off of troubled banks' books. All of these will help WaMu as home values will stop plummeting. A bankruptcy to the tune of WaMu would be unprecedented in every way. 2257 branches, 60,000 employees, 134 billion in deposits.

The FDIC list of the top 137 banks that are at risk of closing has an aggregate total of less than half of the deposits of WaMu. All 10 major bank failures in history put together are smaller than a failure like WaMu.

WaMu is not going anywhere -- contrary to what the writers with the LA Times wish that you believe. Remember to take all third-party information as if there were a 50/50 chance of it being true. There is no way to know whether the writer of this article has a short interest in WaMu, therefore making them wish to put WaMu in a negative light. Be skeptical of an article like this.

Go to the source for the facts as the LA Times seems to have a problem just reporting the facts:

http://investors.wamu.com/irweblinkx/corporateprofile.aspx?iid=102028

http://money.cnn.com/magazines/fortune/global500/2006/snapshots/1554.html

http://www.usnews.com/articles/business/economy/2008/07/15/the-10-biggest-us-bank-failures.html

[Tom Petruno]

William H.: Los Angeles Times writers cannot hold positions, long or short, in any stock they write about -- so, no, I'm not short WaMu. Second, as you can see, I included the links (in hypertext) to WaMu's initial statement and to its rebuttal of the debt rating firms, so that readers could further inform themselves.
Tom Petruno

[Andres Z]

Wamu is not going to last another month, they took on too much risk to make a quick buck. Who would take on sub prime junk bonds with a AAA credit rating? Give me a break, they are getting what they deserved and none of these companies deserved to be bailed out. This is what we call "free market capitalism"... What a joke...

Let them all fail because the longer we try to stop the inevitable the longer it is going to take for this economy to recover. Moody's gave them a junk credit rating for a reason, it's junk plain and simple.

[bob l]

FEAR MONGERS thats all need to run a newspaper. Nobody watchs the weather channel for more then 5 minutes unless you think your house is going to be swept away to the Wizard Of Oz.... Scare the crap out of them and they will keep coming back for more..........

[Gyula Huszar]

I thought that WHAMU had only 45,000 employees. I guess they hired 15.000 people since March. http://uk.reuters.com/articlePrint?articleId=UKBNG9049020080619

[Maggie Knowles]

Welcome to taxation without representation (when they get bailed out).
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
"But the market clearly doesn’t trust WaMu -- otherwise, the stock wouldn’t be where it is.
Credit-rating firms don’t have much faith, either. Moody’s on Thursday cut WaMu’s senior unsecured debt rating to the "junk" level of Ba2, from Baa3."
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Yep, it's tough to get "a market" to give you their money if they think you're a liar and a thief. And what about those credit-rating firms, does their opinion matter anymore? They're liars too, not to be trusted.

Heck of a job Wall St.!

[Gyula Huszar]

WHAMU deposits as of June end; 182 billion. WHAMU deposits as of end of Aug, 143 billion. If they keep on lowering the amount on deposit by 20 billion a month, by March there will be no deposits at all, and the FDIC can breathe a sigh of relief. Finally a good news item! The economy can be saved if we can just keep these dead-man-walking institutions stumbling around for another seven or so months. One day at a time.

[martscan]

William H: I haven't noticed any insider buys at WaMu.

[Ralph]

Look at what WAMU presented to bond investors in May 2008. It breaks down the average and current non performing loans, expected write offs, etc in great detail.

http://www.snl.com/irweblinkx/file.aspx?FID=1001141041&IID=102028

The parent page is here:

http://investors.wamu.com/IRWebLinkX/GenPage.aspx?IID=102028&GKP=202439