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WaMu's wild, rumor-filled week

September 12, 2008 |  7:04 pm

From Times staff writer E. Scott Reckard:

Another day of speculation capped a shaky week for shares of Washington Mutual Inc., the nation’s biggest savings and loan and now a magnet for takeover rumors.

Pressured by regulators, WaMu’s board fired embattled Chief Executive Kerry Killinger on Monday. Yet the stock still fell four of the five days and ended the week at $2.73, down 36% from a week earlier -- a further humiliation for what was a $45 stock early last year.

Rumors flew through the mortgage industry all week. One was that Seattle-based WaMu would cease all home lending next week. Another said Citigroup Inc. would step in to buy the thrift. And an industry publication reported today that JPMorgan Chase & Co. was in late-stage talks to buy WaMu.

Wamubranch JPMorgan, based in New York, has considered WaMu a tempting target because of its huge branch network in the West. Killinger forged WaMu largely by acquiring California S&Ls –- American Savings, Great Western, Home Savings –- in the 1990s. WaMu also bought San Francisco-based subprime credit-card specialist Providian in 2005.

Spokesmen for WaMu and JPMorgan declined to comment, but a person close to JPMorgan CEO Jamie Dimon said today that no talks were underway.

Another report said WaMu, which lost more than $6.3 billion over the last three quarters because of growing problems in its mortgage portfolio, might seek to sell some of its far-flung assets, such as branches in New York.

As the various scenarios battled for traction today, WaMu shares fluctuated wildly, rising as much as 16% above Thursday’s closing price and falling as much as 14% below it.

One fear is that market uncertainty will take a toll on what is widely seen as an extraordinary asset –- WaMu’s more than 2,600 offices in 36 states, most of them retail banking branches. The doomsday scenario: an IndyMac Bank-style panic by depositors, forcing regulators to step in.

WaMu addressed those fears Thursday in a statement emphasizing that it continues to meet regulatory net-worth requirements and is, in fact, considered well capitalized. But fears lingered.

"The biggest short-term problem WaMu is facing is the steady erosion of its deposit-franchise and going-forward profitability due to all the bad news," said Bert Ely, a veteran banking consultant.

Though newly installed CEO Allan H. Fishman has barely had time to warm his new chair, "a deal sooner rather than later is better for its stockholders," Ely said. "If WaMu’s problems are serious enough and the regulatory pressure is strong enough, WaMu’s directors will cut a deal."

But the person close to JPMorgan’s Dimon said the bank didn’t have enough information about WaMu’s banged-up mortgage and credit-card holdings to make an informed offer.

"Just how toxic is toxic?" this person asked. "You need more transparency to figure out exactly what’s going on."

In early 2007 WaMu was the sixth-biggest subprime lender and was fighting Countrywide Financial for the No. 1 spot in "alt-A" loans, the not-quite-ready-for-prime mortgages to borrowers who didn’t have to document their earnings. Now WaMu’s portfolio is being eaten away by surging defaults.

Of course, Countrywide has been swallowed by Bank of America and IndyMac is being run by Uncle Sam. So Killinger can take credit for one accomplishment –- his big thrift is still alive, if not exactly kicking like it used to.

Photo credit: John G. Mabanglo / EPA