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Washington Mutual Preps Itself for Sale

If WaMu's assets were to be market-to-market in the current environment, "the net value of WaMu would be negative in such a situation ... To get back to positive value, a buyer would have to value the branch network at a 25%-plus deposit premium. Thus, even though a buyer might see significant positive economic value in the WaMu franchise, the accounting for such a transaction could put a buyer in a negative position," he writes.

Cannon estimates that WaMu could see additional provisioning and losses of $23 billion over the next two years, but in an extended down economy credit expenses could rise to $28 billion and would require the bank to have to raise roughly $5 billion in additional capital.

"[W]e believe that many market participants believe that this loss assumption, or even more, is a more realistic assessment of Washington Mutual's position," Cannon writes. A capital raise, "even at onerous levels, could, in our view, improve the confidence of depositors, regulators and investors. ... We believe that Washington Mutual is in a position to raise capital due to the strength of its depository franchise."

Fishman "has a number of issues to address, in our view, including ensuring the confidence of depositors, regulators and investors that Washington Mutual has the resources to weather the consumer credit storm," he writes. "We believe that he needs to act quickly, as patience appears to be an increasingly rare virtue for his constituents."

Add in one more ball to the juggling that seems to be going on in the financial sector -- the fact that the fund used by the Federal Deposit Insurance Corp. to insure deposits at banking institutions has fallen below the minimum target level set by Congress, according to an Associated Press article. So far 11 bank and thrifts insured by the FDIC have failed this year, including IndyMac.

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