WaMu Shores Up Balance Sheet Andrew Jeffery Apr 07, 2008 8:30 am |
![]() |
![]() |
|
||||||||||||
|
The Wall Street Journal reports that Washington Mutual (WM) is raising $5 billion to shore up its balance sheet amid ongoing mortgage-related losses.
Private equity firm TPG and other investors will snatch up common and preferred stock in the Seattle-based retail bank, significantly diluting value for existing shareholders. The final terms of the deal are not yet finalized, but The Journal says TPG will receive a seat on Washington Mutual's 14-member board.
As is the case with WaMu, Professor Sedacca expects financial institutions to increase capital raising efforts in the coming months. Leverage has skyrocketed since the credit crunch began, as banks have been forced to bring bad debt onto their books. The value of this debt is eroding, so banks must raise money to remain solvent.
Washington Mutual has been on the leading edge of the subprime debacle since it started. In December of last year, the bank announced a series of cost-cutting measures in an attempt to reverse its fortunes. It laid off employees, tightened lending standards and cut its dividend. In the past few months we've seen many lenders follow its lead.
As of last month WaMu still had the largest subprime exposure of any major bank, at $19 billion.
WaMu was one of the chief issuers of Pay Option ARMs, which allow borrowers to choose between a variety of payment choices. The smallest is less than the monthly interest due, which creates what's known as "negative amortization." Countrywide (CFC) and Bear Stearns (BSC) were also in on the action, and Wachovia (WB), with its 2006 purchase of Golden West, took on over $100 billion of these negative amortization loans, primarily backed by homes in California.
If Washington Mutual is being forced to raise capital, it's only a matter of time until more deposit-holding institutions follow suit. Although many cheer these developments as signs the credit crunch is drawing to a close, this view is based on hope alone.
discuss this article and more on the mv exchange |
|
Get real-time options trading ideas from Steve Smith, veteran options trader and newsletter author, plus let him show you the way to cut risk and boost your returns through the strategic use of options. Click here for a free 14 day trial to OptionSmith by Steve Smith.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2009 Minyanville Media, Inc. All Rights Reserved.
| add rss feed | free article alerts |
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
DC
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennesee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Local Guides

















