Signup for our free newsletter:

WaMu Seized, Wachovia and National City Tumble

Written By Brian Hicks

Posted September 26, 2008




Another one bites the dust.

After the market close yesterday, Washington Mutual slipped beneath the waves. It was the largest U.S. bank failure in history and marked the end of an instituton that had been in business since 1889.

The good news is this one didn’t cost the taxpayers a dime.

The bad news is its share price went to .16 cents and its bond holders have been stiffed in the deal. Prior to the bust, Washington Mutual traded as high as $45 a share.


That put both Wachovia and National City on the watch list as the next banks to fall.

Here’s more on that score from Bloomberg.

It’s in an article by Linda Shen and David Mildenberg entitled: Wachovia Slumps After WaMu’s Seizure, Bailout Impasse

“Wachovia Corp. and National City Corp. slumped after negotiations on the government’s financial bailout stalled and Washington Mutual Inc. was seized by regulators and sold to JPMorgan Chase & Co.

Wachovia dropped $3.84, or 28 percent, to $9.86 at 1:20 p.m. in New York Stock Exchange composite trading, and Cleveland-based National City fell 40 percent. National City and Charlotte, North Carolina-based Wachovia have plunged more than 80 percent in the past 12 months.

“Washington Mutual showed that one of the big ones can go down, and if you are looking at who else in the top 10 is facing the most pressure, Wachovia is right there,” said Stan Smith, a banking professor at the University of Central Florida in Orlando.

WaMu was taken over by regulators yesterday in the biggest U.S. bank failure after customers of the Seattle-based lender withdrew $16.7 billion from accounts since Sept. 16. The savings and loan was “unsound,” the Office of Thrift Supervision said. The collapse came as lawmakers planned to meet again after talks on Treasury Secretary Henry Paulson’s bailout reached an impasse.

“All eyes are now on Wachovia,” said Anton Schutz, president of Mendon Capital Advisors Corp. in Rochester, New York.

We feel it is likely that Wachovia will need to issue equity to provide greater reassurance about its liquidity and solvency,” Mike Mayo, an analyst at Deutsche Bank AG, wrote in a note today. He reduced his target price to $11 from $16 a share.

Mayo expects the firm will need an additional $11 billion in capital assuming a 20 percent discount on their ARM portfolio, he wrote. Assuming common shares were issued at yesterday’s closing price, it would dilute current shareholders by about one third.

Merrill Lynch & Co. analyst Edward Najarian expects the losses to be in the 15 percent to 17 percent range, according to a Sept. 9 report. Housing prices in California declined by a record 41 percent in August, the 11th straight monthly fall, the California Association of Realtors said yesterday. Almost half of Wachovia’s option ARMs are in California.”


So it looks like the priest is the hallway again.

Have a great weekend.