With the stock recently falling under the $10 a share mark, its low in the last dozen years, its S&P bond rating lowered to BBB+, facing mounting losses from bad mortgage loans, headed up by a CEO, and a board under attack for bad management and excessive compensation. What will become of Washington Mutual (NYSE: WM)?
Washington Mutual, one of the oldest savings banks in the nation, is a savings and loan holding company with a market cap of $10.5 billion dollars. It generated over $25 billion in revenue last year, but had a $67 million loss, or twelve cents a share. It is projected to have continued losses, and though the current average estimates put the figure at over 70 cents per share for the full year ahead, nobody really knows how deep the losses will be. Quarterly and annual estimates have been changing, usually for the worse, on a weekly basis, as the serious nature of the mortgage losses continues to slowly come to light.
Investors have duly punished the stock, driving its price down from a twelve-month high of 44.66 per share all the way to 9.91. In recent days, with the market’s pop due to the Fed’s lending largesse, the stock has risen to as high the twelve-dollar plus per share mark, but has settled down in the mid elevens. Outspoken CNBC Mad Money commentator and former hedge fund manager James Cramer has long been a critic of Washington Mutual, as well as its CEO Kerry Killinger, and predicted earlier in the year that Washington Mutual might be one of a dozen or so banks to “disappear,” either via takeover, absorption or bankruptcy. The Board of Directors has been harshly criticized by some in the investment community as well as the public for rewarding the executives with compensation bonuses despite bad management.
Recent stories had Washington Mutual soliciting a capital infusion from either private equity or sovereign wealth funds, stories which it denied, and still other Wall Street stories suggested JP Morgan Chase (NYSE: JPM) was looking to take WaMu over. Just this week, the latest stirrings—all denied by Washington Mutual officials—suggested Goldman Sachs (NYSE: GS) or Warren Buffett were ready to wade in with cash. Hefty concessions or stakes would likely be the price paid by Washington Mutual in turn for its potential survival.
Public complaints against the lending practices of Washington Mutual have been voiced nationwide by individual consumers, as well as the lament that a regional savings bank, one which historically serviced the Pacific Northwest admirably for many years, had somehow turned into an unfeeling megabank detached from its communities and its customers, while at the same time it developed a runaway appetite for outsize profits which led to questionable lending practices.
The human face of the credit crisis may be the working person who was squeezed by a bad ARM loan, one they couldn’t refinance which led to a foreclosure, as well as the long-term retail investors who held the Washington Mutual stock while it shed most of its value (and perhaps will lose all of its value, when it is all finished), while at the same time the exotic mortgage-lending practices of Washington Mutual have turned on itself to threaten the very continuation of its existence.
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