Tuesday, September 16, 2008

Wamu Down, not out (WM)

From Bloomberg:
Washington Mutual Inc., the biggest U.S. savings and loan, fell 6 percent in German trading after Standard & Poor's cut its credit rating to junk...

...WaMu funds its daily business with federally insured deposits at its 2,300 branches, instead of short-term lending from other companies. With no sign that customers are defecting, and another $50 billion on hand for liquidity, newly hired Fishman may ride out the turmoil.

`Different Scenario'

``It takes millions of people making that decision to drive the bank under, as opposed to three banks with exposure to Lehman that say they don't want to renew loans,'' said Charles Haley, professor emeritus of finance at the University of Washington's Foster School of Business in Seattle. ``It's a very different scenario.''

Even S&P acknowledged that WaMu's deposit base appears to be stable, saying in yesterday's statement that the company has enough liquidity to meet all fixed obligations through 2010.

``The bank is operating with adequate capital positions from a regulatory perspective and has demonstrated funding resilience as the deposit franchise has remained stable,'' S&P said.

Still, the drop in WaMu's stock price may prompt concern from customers that the bank is in trouble, said Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania.

``Anyone who picks up the paper can see WaMu has lost more than 80 percent of its market capitalization over the past year,'' Egan said. ``Rest assured, depositors are looking at that and growing anxious.''

Savings Accounts

WaMu uses money that consumers deposit in savings accounts and certificates of deposit to lend to other customers, primarily for mortgages. At the end of June, WaMu customers had 42.4 million accounts, almost all with less than the federally insured maximum of $100,000, according to data from the Federal Deposit Insurance Corp.

To attract deposits, WaMu offers higher CD rates than competitors. The bank offers a 4.25 percent eight-month CD rate to online customers. Bank of America pays 3.2 percent for a seven-month term. Wells Fargo & Co.'s rates on five- and nine- month CDs are less than 3 percent.

The deposits may not be enough to save WaMu because of the prospect for losses on subprime loans, said Donald Putnam, managing partner at Grail Partners LLC in San Francisco. WaMu expects up to $19 billion in losses over the next 2 1/2 years...MORE