Updated from Monday, Sept. 22Investors at Washington Mutual ( WM) are growing increasingly anxious about the fate of the ailing bank, but a resolution could still be some days away. Washington Mutual shares slumped 20% on Monday, following a Wall Street Journal report that the nation's largest thrift is being pressured by regulators to either sell itself or recapitalize. The Financial Times on late Monday reported that the Office of Thrift Supervision was pushing for a quick resolution to the situation. The regulator could push to broker a deal to split WaMu's assets -- both good and bad -- among several banks. But as the federal government makes headway on a plan to buy up to $700 billion in bad mortgage assets, potential WaMu suitors may prefer to wait until the plan is more formalized before making a deal, some analysts and other banking industry veterans say. "The bailout plan made
Washington Mutual has been the source of much speculation of late regarding a sale but so far no agreement has taken place. Like Wachovia ( WB), a major stumbling block for a sale is WaMu's exposure to troubled mortgages and also increasingly to credit card defaults. The company has said that it expects cumulative losses on its assets to reach $19 billion but some analysts say it could go higher. It is unknown at this point just how much more WaMu's mortgage portfolio will sour and how many more marks the company will have to take. Ken Thomas, a Miami-based independent bank consultant and economist, says that "buying time" will be key for WaMu's new CEO Alan Fishman. "What was Plan B last week has now changed," Thomas say, referring to the government initiative. "If you can buy time, the situation is so fluid and quickly changing that it really makes a big difference." Mortgage portfolio aside, the company has roughly 2,300 branches in 14 states. WaMu has roughly half its branches in three key states, California, Texas and Florida, Thomas says. "That's the real value," he says. "If WaMu can unload all of
its problems ... it's going to make it more attractive and that's why buying time is the best alternative." The Journal article on Monday suggested that a sale may also go faster if regulators were willing to assist in a takeover. In one scenario, the Federal Deposit Insurance Corp. would take control of WaMu's banking operations and then sell its deposits to another bank, the Journal said.
While some observers believe the threat of a WaMu failure is real, Gary Townsend, president and CEO of Hill-Townsend Capital, a private equity firm that he started in conjunction with Commerce Bancorp's ex-CEO Vernon Hill, says regulators should not act hastily. Regulators and the government "would like a solution quickly and perhaps might even be pushing
for a deal, when it would be smarter to sit back and provide more time," says Townsend, who spent seven years as chief examiner of the Federal Home Loan Bank system. But Thomas says it is more likely that WaMu, with $310 billion in assets, is likely to undergo a government-assisted merger before it were to fail. "I think they government would not let them fail," Thomas says. "They would make sure to put them into a merger with somebody. Clearly there are banks out there that could use their franchise desperately." JPMorgan Chase, for one, has little presence in Florida and California, while Wells Fargo is looking to expand its presence in Texas. WaMu executives are also considering raising additional capital, according to the article. The company raised more than $7 billion in April from an investor consortium led by private equity firm TPG. The firm recently waived a provision in its investment agreement requiring WaMu to pay it back for any significant dilution to its stake if the company decided to raise more capital or sell itself. "Is this an accounting issue or the value of underlying assets has weakened so much to threaten the company's insolvency?" asks Townsend. "I suspect that others are struggling with that same question." WaMu shares closed down 92 cents, or 21.7%, to $3.33 on Monday.