WaMu Seems Ripe For the Picking

While Wells Fargo(WFC Quote - Cramer on WFC - Stock Picks) may have the financial wherewithal to buy the company, such a move wouldn't really make sense from a strategic standpoint, since the two banks have a lot of overlap in their footprints, KBW's Cannon says.

On the other hand, Toroian, a contributor to TheStreet.com's sister Web site, RealMoney.com, whose Bell Rock Capital does not own shares of WaMu, suggested that a private equity firm may have interest in the bank.

While purchasing the bank outright is unlikely for a number of reasons -- including possible regulatory hurdles -- the notion of a private equity firm taking a stake of some sort isn't all that surprising, given the interest by several distressed buyers recently lurking around the mortgage industry.

In late November, Citadel Investments provided some much-needed liquidity for E*Trade Financial(ETFC Quote - Cramer on ETFC - Stock Picks), which saw its stock price fall below $5 a share after it struggled to stay afloat from writedowns on asset-backed securities and troubles in its mortgage arm. Citadel ended up paying $1.6 billion for a 20% stake in the New York-based online brokerage.

Still, at least one analyst says the concerns about Washington Mutual's business are overdone.

"We believe that concerns about viability are overwrought," writes Howard Shapiro, an analyst a Fox-Pitt, Kelton, in a note. "Viability should only come into play if capital levels were breached."

"The company's tangible equity to capital ratio is 5.5%," he said in an interview. "They have $3.7 billion of capital above that 5.5% ratio; they have $2.5 billion in current reserves. That's $6.2 billion and [WaMu] expects to reserve $8 billion in 2008 -- that's $14.2 billion in reserving plus capital ability. So in order to penetrate that 5% capital ratio you would have to have losses in excess to that. "

But even then, it would still have tangible capital of 3% to 4%, Shapiro added. "It's not ideal but it's not a disaster," he said

WaMu did not specifically address the possibility of a sale during a conference call late Thursday to discuss earnings. Still, Chairman and CEO Kerry Killinger sought to reassure analysts and investors that the company doing everything it could to get back to profitability.

Last month, WaMu slashed its dividend 73% to 15 cents a share, raised $2.9 billion in a convertible offering and cut more than 3,000 jobs and exited the subprime lending business through a restructuring of its home loans unit. Killinger also said he would not accept a cash bonus for 2007 and bonuses for the bank's management team have "have been greatly reduced."

"We all understand that we have to do better and we will," Killinger said.

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