WaMu Falls on Goldman's Short Sale Recommendation

Discussion in 'Stocks' started by ASusilovic, Apr 11, 2008.

  1. Washington Mutual Inc.'s full-year loss will be wider than first estimated, according to Goldman Sachs Group Inc. analysts, who recommended selling the shares short. The lender declined 6 percent in early trading.

    Washington Mutual, the nation's biggest savings and loan, may lose $3.30 a share this year, said Goldman Sachs analysts including New York-based James Fotheringham in a note to investors today. Goldman previously forecast a 2008 loss of $1 a share for the Seattle-based company.

    The lender raised $7 billion this week from a group of investors led by David Bonderman's TPG Inc. after losses on subprime loans ate up capital. Washington Mutual may have a total of $23 billion in mortgage-related losses, Goldman said today. The firm cut its 12-month price target on shares of Washington Mutual, also known as WaMu, by 17 percent to $10.

    ``Given WaMu's disproportionate exposure to states'' where home prices are forecast to decline, Goldman expects losses between $17 billion and $23 billion, the analysts wrote.

    Washington Mutual dropped to $10.74 in early trading. The stock fell 71 percent in the 12 months to yesterday's close of $11.42.

    Washington Mutual sold 176 million shares to the TPG-led group at $8.75 apiece, the company said on April 8. Chief Executive Officer Kerry Killinger, who had been struggling to reassure investors the lender has enough capital to stay afloat, rejected a bid by JPMorgan Chase & Co., the third-largest U.S. bank, that valued the company at about $8 a share, a person familiar with the talks said.

    First-Quarter Loss

    The lender on April 8 reported a $1.1 billion first-quarter loss and said it will stop making loans through mortgage brokers and close 186 home-lending offices.

    Fotheringham advised Goldman's clients to sell short, which is the sale of stock borrowed from shareholders. People who sell short hope to profit by repurchasing the securities later at a lower price and returning them to the holder.

    Goldman reiterated its ``outperform'' rating on Washington Mutual bonds and credit-default swaps.


    What coincidence that the short sale recommendation leaks right now....:D
  2. Div_Arb


    So Goldman is interested in making a bid for WaMu? I wonder why they would need a retail distribution channel?