Good morning all: I came back from vacation on Monday to see that Washington Mutual's stock had dropped 35% in one day. It's now trading in the 3's which is down from over $40/share. Of course they say they're safe but who knows these days. Wa.Mu. has had a rough ride the last year along with several other banks. I read yesterday that federal regulators expect as many as 90 more banks to fail over the next year or so. Every bank claims they're safe because of their customer deposits but here's the rub. The FDIC (federal institution that guarantees your deposits) only insures your money up to $100,000. Granted, most of us don't have that kind of cash hanging around. But if you have above that amount are you going to keep it at the failing institution or put it somewhere else? This is the problem Indymac had as customers sensed it was failing. Customers made a run on the bank and withdrew all their money. Expect other banks to be taken over by the Feds. for this very reason. There are so many smaller to medium-sized banks whose stock is trading in the $1-5 range.
With WaMu. I expect a sale or merger. And there will probably be others as well. The alternative would be total failure. The next couple of years should be interesting for sure. It won't necessarily help our business because credit will probably remain tight until this all gets sorted out. I'm curious as always on your opinions. To me, this has been an interesting ride. Not necessarily one I would have wished for but probably necessary to clean up all the garbage. Have a great day!
Paul
Paul McFadden
One of the easiest to understand summaries I have seen about the situation. Thanks for posting. As a WAMU customer, mustadmit that I am guilty of pulling out a lot of my saving on Monday when I saw the news. Sad, because I have always been happy with their personal banking services. If it comes down to it, I hope your prediction of merger happens before dissolving the business.
All of the regional banks are paying a heavy toll for their poor credit portfolios. Take a look at Sun Trust and Wachovia, ouch. If the cash strapped big name banks were dealing with the same mess we would see consolidation in industry. Unfortunately I think there is a lot more dirt under the rug in auto loans and cc debt.
Can you say fire sale?
Chase was sniffing their hiney this past Winter to see if WAMU was worth picking up; they might be a good buy at $1.25 a share, with their upcoming writedowns, but we won't see a deal signed around until the share price is low enough to make their non-performing loans worth taking. The number of large entities that have the capital to throw lifelines to stuggling larger than regional banks is very, very limited. WAMU was counting CINA, Capitalization Interest form Negative Amortization as earnings and it amounted to more than 30% of their earnings the past 2 years...not real earnings, but neg am loans ballooning on the books because borrowers were making the minimum payments (of course all of them were investing the difference of the the minimum payment and full am payment).
When WAMU starts offering CD rates that are outrageously high...run for the hills.
Thanks, Sara. I appreciate it. I think a merger is probably in the cards; perhaps by the end of this year.
Thank you. You're right. All the banks are taking a bath right now. It will probably take another year or so before there is light again.
Rich: I like your prediction. Someone will bite if the price is right. Have a great day!
Paul
Paul, Glad your back and hope you had a great vacation. It is funny that folks would make a run on the bank, when their money is protected by the FDIC. In fact, it is exactly why they were created in the first place, after the runs on banks after the crash in 1929....it just goes to show that no matter what the risk, herd mentality has a life of it's own and is certainly NOT rational.
Hang on tight and keep you arms and legs inside the ride.
Bo
Thanks, Bo. The bloodbath will continue for a little longer I'm afraid. I expect a turnaround either next year or the year after. In the mean time, one person told me people are always buying real estate so I plan on ahnging in there. Take care.
Paul