Wednesday, September 17, 2008
Washington Mutual is in very big trouble, and it's America's biggest bank. This is a critical issue for me because I'm one of the millions of people who have money on deposit there; both a savings and a checking account in my case.
I never chose WaMu. I originally opened a checking account with First Interstate Bank, because they were the first to have branches in more than one state, and I traveled a lot at the time. This was 20 years ago.
First Interstate folded and became Home Savings. Then Home Savings was sold to WaMu. I became a WaMu customer by default, and now the default is about to screw millions of us.
I only learned about how severe this problem was by monitoring the tireless atrios, whose priorities are more balanced (as far as I'm concerned) than anybody else's.
Atrios links to the "financial infotainment" page Minyanville, which quotes a New York Post article saying federal regulators are discussing a possible buyout of WaMu with JP Morgan and Wells Fargo, among others, then notes ominously, "the issue for Washington Mutual remains this: will a buyer step up to prevent customers from withdrawing deposits?"
"At what price could an offer take place? Given the deteriorating situation in credit markets, it is very unlikely an offer would come at a premium to the current valuation and may even be offered at a steep discount. The reality, however, is that the board should consider whatever offer comes their way, even if it does come at a discount. Every day without a decision thus far has brought another day of shrinking value."
Washington Mutual stock is now trading at $2.01. A year ago it was $39.25. Standard and Poor's recently downgraded the bank to triple-B-minus, which is the worst kind of junk.
Even more distressing for WaMu depositors, Atrios links to an AP story which notes that Federal Deposit Insurance Corporation's insurance fund "has slipped below the minimum target level set by Congress..." Keep in mind that we're talking about the nation's largest bank.
We're looking at the real possibility of systemic collapse. Welcome to 1931.
Anybody wanna call me "Chicken Little" now?
Atrios comments, "Assuming no buyer shows up, market wisdom suggests the strong likelihood that some upcoming Friday, at about 8PM EST, the FDIC will quietly add it to their failed bank list. And then the FDIC will probably need to be bailed out."