Washington Mutual going under:

When a company comes and claims it's well capitalized, it seems to be the kiss of death. The market is not fooled so easily.

 

What happens to my credit card debt owed to WM if they BK? :eek:

 

Let's look at the press release closely.

The first sentence says: ""Washington Mutual recently raised $7.2 billion in capital and its tangible equity to total tangible assets ratio was 7.8% as of June 30. "

Went to the WM website and found a presentation that was presented by Kerry Killinger, Chairman and CEO on May 21, 2008 at the Lehman Bros 11th annual Financial Services Conference.

On page 6, WM states that with the $7 billion capital raise (from TPG) they will have a pro-forma Q1 '08 Tangible equity/tangible assets ratio of 8.62%.

Now, 90 days later, at the end of Q2, they are stating that the ratio is 7.8%. A drop of 82 basis points.

Can we assume that by the end of Q3, the ratio will be 6.98 if the current trend continues?

Sounds like they will need another capital raise, but I don't think they will be able to raise any capital. The $7 billion TPG deal has a provision that states if WM raises additional capital a prices below what TPG paid, then TPG gets the lower price via "make goods" (additional free shares to bring their cost basis per share down to the new capital raise price per share.)

This is a death spiral for WM. My guess is a take under by? JPM? TPG?

I think WM is too big for FDIC to handle.

Or maybe the FED provides some incentive for JPM or someone to take WM before it becomes a problem.

They need to sweep this one under the rug before it gets nasty...

 

I like your analysis, sf. I agree with your assumptions about the general outcome, too.

 

you still owe the full balance to whoever buys the debt.

The bottom-feeders buying at 5 last week ran for the exits today.

 

I think with all this confusion now in the banking industry even people who dont know what stocks are, are worried about their CD's and bank accounts earning no more than 2%. I really am starting to worry myself, when the avg person who doesn't know a thing about the market, but is now watching cnbc to see if the bank they bank at is going under, its time to really start worrying.

 

Futures FALLING again:

Contract Last Change
CME E-mini S&P 500® 1222.25 -600
CME E-mini NASDAQ-100® 1794.75 -775

 

Today almost felt like capitulation for me. We saw extremely high volume, which could be a sign of a blowoff bottom. Despite what people seem to believe, WM is not going bankrupt anytime soon. If they DO go bankrupt, the problems they cause for the financial system won't be good news for any of us.

 

You got to run on the bank like you did on Indymac.

 

RATIOS are quite high on WMU. They are bulls eye for people running on them and if they do you can count on lots of misery on all of us.