WaMu's Gone, but Trouble Spots Remain

Credit deterioration in WaMu's residential mortgage portfolio has been significant as housing prices fell sharply, forcing the thrift to raise $7.2 billion in capital from a group of institutional investors led by TPG, as well as a restructuring of the company away from mortgage broker-originated home loans. WaMu had large exposures to subprime mortgages and option ARMs -- two of the more troubling loan types causing pain to the banks that originated them.

Since Sept. 15, WaMu had deposit outflows of $16.7 billion, according to the Office of Thrift Supervision, its primary regulator.

The failure of WaMu is not a turning point because "we still have significant troubled assets spread throughout the industry," says Jaime Peters, an analyst at Morningstar, who covers large-cap banks. "We have several banks with tight capital and problem assets loading their books."

"While most of the problem banks are incredibly small where the FDIC had to step in, there are still some out there that are large enough to cause significant problems in the market," she says.

The number of financial institutions on the FDIC's "problem list" this year is up to 117, according to a report issued last month. Thirteen banks have so far failed this year, including another once large mortgage lender IndyMac Bancorp.

Since the beginning of September alone, the government has rescued Fannie Mae (FNM Quote), Freddie Mac (FRE Quote), AIG (AIG Quote), Lehman Brothers has filed for bankruptcy, Merrill Lynch agreed to be sold to Bank of America (BAC Quote) and Goldman Sachs (GS Quote) and Morgan Stanley (MS Quote) have become bank holding companies.