Large U.S. bank collapse seen ahead

[Fredfredson]

Shares of Morgan Stanley and Goldman Sachs plunge

http://biz.yahoo.com/ap/080917/inves...ks_future.html

Wednesday September 17, 5:18 pm ET
By Joe Bel Bruno, AP Business Writer

Morgan Stanley, Goldman shares plunge on fears they need partners to avoid financial meltdown

NEW YORK (AP)

Shares of Goldman Sachs and Morgan Stanley plunged on Wednesday, a sign that investors fear they can't survive in their present form as the last two major independent investment banks.

Executives of both companies insisted a day earlier, when they were reporting profits for the most recent quarter, that they do have the financial wherewithal to go it alone.

But analysts said the question increasingly is whether continued market turmoil could force them to acquire or be acquired by commercial banks, whose deposit-taking operation would provide a stable source of funding. The upheaval in the U.S. financial system has driven Merrill Lynch & Co. and Bear Stearns Cos. into emergency sales, and Lehman Brothers Holdings Inc. into bankruptcy.

Anxious investors also bid up the price of protecting against a default of debt issued by the two investment banks. The spike in credit default swaps has fanned fear gripping Wall Street that the investment banking model is in jeopardy of extinction.

John Mack, Morgan Stanley's chief executive, struck back on Wednesday. He told employees in an e-mail that the No. 2 U.S. investment bank was "in the midst of a market controlled by fear and rumors."

"I know all of you are watching our stock price (Wednesday), and so am I," he said in the e-mail. "After the strong earnings and $179 billion in liquidity we announced -- which virtually every equity analyst highlighted in their notes this morning -- there is no rational basis for the movements in our stock or credit default spreads."

Shares of investment banks have been sideswiped by a wave of short selling, which can cause big swings as investors bet that a stock's price will fall so they can profit from it. Morgan Stanley shares fell as much as 44 percent Wednesday and closed down 26 percent, while Goldman shed more than 35 points before narrowing their loss to about 18 percent.

The Securities and Exchange Commission on Wednesday took measures to rein in aggressive forms of short-selling that were blamed in part for the demise of Lehman, which filed for bankruptcy protection on Monday. The regulator adopted more restrictions on such trades, and tightened anti-fraud regulations.

"This may be the most panicky the market has been in since this credit crisis began," said Roy Smith, a professor of finance at New York University's Stern School of Business. "People are running for high ground at any cost. The question is, can they stay solvent longer than the market is irrational."

Smith believes the companies can survive on their own, but remains concerned about the current environment in which they operate. Global banks and brokerages have written down more than $350 billion from wrong-way bets on mortgage investments and other risky securities during the past year.

Morgan Stanley had hoped to stem investor panic about its financial health by releasing third-quarter results a day earlier than planned. On Tuesday, the company posted better-than-expected profits, and while Goldman Sachs' profit slumped 70 percent, it did finish the quarter in the black.

Goldman Sachs Chief Financial Officer David Viniar and Morgan Stanley CFO Colm Kelleher both said their firms were able to navigate through the market dislocation, and vowed to remain independent. The CFOs said their firms have enough cash on hand and no need to raise more.

Spokesmen for both investment banks declined to comment Wednesday about the plunge in their shares.

Those in favor of such combinations believe that the sale of Merrill Lynch and collapse of Lehman Brothers might force the remaining investment banks to pursue some kind of transaction to stabilize results. The steady funding base of deposits held by banks would go a long way in assuage investors concerned about volatility.

There have been numerous reports in the past year that Goldman could buy a retail bank, with Charlotte, N.C.-based Wachovia Corp. mentioned the most. On Wednesday, The New York Times reported that a representative from Wachovia called Mack about a possible deal, citing people briefed on the conversation.

Both Morgan Stanley and Wachovia declined to comment.

Regardless, the feeling on Wall Street remains that these firms -- at least fundamentally -- can emerge from the credit crisis in a position of strength. Both Viniar and Kelleher told analysts on Tuesday that they can take advantage of the market's dislocation by scooping up undervalued assets.

They also will benefit from less competition. During the third quarter, both companies reported a surge in profit from their prime brokerage businesses that trades securities for institutions.

Glenn Schorr, an analyst with UBS, said on Wednesday that the market reaction was "insanity." He said Goldman and Morgan Stanley aren't running out of money and remain profitable.

"The world should really be concerned about this because if we continue to squeeze the financial system's balance sheet and see fewer players in the business, the available credit to corporations and hedge funds will shrivel up and the cost of capital will continue to skyrocket across the board," he said. "A lack of confidence and forced consolidation into firms that are 'too big to fail' can't be the final solution."

[Tom Joad]

Originally Posted by Tom Joad

I think there is about an 80% chance that FDIC will run dry within a year. Then the Fed will have to bail them out.

God Joad, what a dummy you were back in August.

There is a 100% chance that FDIC will run dry and it won't take anywhere near a year.

[Tom Joad]

Originally Posted by Tom Joad

Looks like WAMU is a good bet for the next big bank failure. If not the next, close to it.

http://biz.yahoo.com/ap/080908/washi...utual_ceo.html

Thar she blows!

http://news.yahoo.com/s/ap/washingto...RAfjWZPIms0NUE

With stock sinking, WaMu appears headed for sale By MICHAEL LIEDTKE and SARA LEPRO, AP Business Writers
1 hour, 25 minutes ago

Ailing bank Washington Mutual Inc. appeared headed toward a sale Wednesday after a major investor removed a potential stumbling block and nervous banking regulators began approaching the most logical buyers.

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The New York Times, citing unidentified people familiar with the matter, said an auction of the bank was already under way, and The Wall Street Journal reported Wells Fargo & Co. and Citigroup Inc. expressed interest in a takeover.

WaMu, Wells Fargo and Citigroup all declined to comment.

A concession by investment firm TPG, which injected $7 billion into WaMu five months ago, may have opened the way to a sale — or, failing that, made it easier for the bank to raise another round of capital.

TPG could have stymied the process because of protection when it bought its stake in April. A clause in its agreement could have required a buyer or another major investor to pay TPG hundreds of millions, if not billions, of dollars in addition to whatever money was injected into WaMu.

But TPG agreed to waive the clause after concluding WaMu needs all the help it can get.

"It became clear that it would be in the best interests of Washington Mutual and our investors to waive the ... provisions," Fort Worth, Texas-based TPG said in a statement. "Our goal is to maximize the bank's flexibility in this difficult market environment."

The efforts to find a buyer, though, were being complicated by uncertainty about the magnitude of losses still lurking in Washington Mutual's home loan portfolio.

"No one knows what's in their books," said a person briefed on the talks between regulators and banks, speaking Wednesday on the condition of anonymity because of the sensitivity of the matter.

Citing unidentified sources, the New York Post said the potential buyers include JPMorgan Chase & Co. and HSBC Holdings PLC., as well as Wells Fargo. The banks all declined to comment.

Federal regulators would like to sell WaMu to a healthy bank, rather than risk a failure that would drain an already depleted deposit insurance fund. By some estimates, a WaMu failure could cost the Federal Deposit Insurance Corp.'s fund more than $20 billion. At $45.2 billion, the fund is already at a five-year low.

After losing $6.3 billion in the past three quarters, Washington Mutual believes it is slowly healing under a new chief executive, Alan Fishman, who will receive an $8 million bonus if he can keep WaMu alive through 2009.

"I think people do know what is in our books and we've been pretty transparent," WaMu spokeswoman Olivia Riley said Wednesday, pointing to a financial update the company released late last week. Those figures suggested WaMu's loan problems are becoming less severe compared to recent quarters, giving some analysts hope that the company can still be salvaged.

Nonetheless, analysts still expect the company to sustain a loss of about $1.8 billion in the quarter ending Sept. 30. And investors are showing little confidence in WaMu.

The company's stock fell 31 cents to $2.01 Wednesday, leaving the stock price with a decline of 85 percent so far this year. The erosion has left WaMu with a market value of about $3.5 billion — down from $43 billion at the end of 2006.

"Something needs to happen soon because WaMu is twisting in the wind," said Bert Ely, an Alexandria, Va., banking consultant. "It's a detrimental situation that has become corrosive to the franchise."

Assuming that Washington Mutual either can't find a buyer or doesn't want to be sold at the price being offered, the thrift could raise more money to fatten its cushion against the losses that are still expected to come. Like TPG did, any investor would be betting that the slumping real estate market will bounce back, allowing Washington Mutual to regain its financial equilibrium and return to the form that enabled it to pocket profits totaling $13.7 billion from 2003 through 2006.

In a Monday research note, Keefe, Bruyette & Woods analyst Frederick Cannon estimated Washington Mutual probably needs to raise at least $5 billion to protect itself from upcoming losses. Cannon thinks Washington Mutual could still be facing as much as $28 billion more in loan losses and other credit-related expenses through 2009.

Alternately, Ely thinks WaMu could sell big chunks of its franchise, which includes $143 billion in deposits and more than 2,200 branches in 15 states. Most of WaMu's branches are in the West, overlapping territory where Wells Fargo and Bank of America are the market leaders.

WaMu's branches in New York and Illinois also could be appealing to buyers if the company is sold in pieces, Ely said. "When you are dealing with a company this big, there are lots of ways you can slice and dice it," he said.

___

[Fredfredson]

Washington Mutual is for sale -- sources


Thu Sep 18, 2008 6:02am BST
By Jonathan Stempel and Megan Davies

http://uk.reuters.com/article/bankin...80918?rpc=401&

NEW YORK (Reuters)

Washington Mutual Inc (WM.N: Quote, Profile, Research), the giant U.S. savings and loan beleaguered by mortgage losses, has put itself up for sale, sources familiar with the matter said on Wednesday.

The Seattle-based thrift has hired Goldman Sachs & Co and Morgan Stanley to run an auction and potential suitors include Citigroup Inc (C.N: Quote, Profile, Research), HSBC Holdings Plc (HSBA.L: Quote, Profile, Research), JPMorgan Chase & Co (JPM.N: Quote, Profile, Research) and Wells Fargo & Co (WFC.N: Quote, Profile, Research), one source said.

A sale is neither imminent nor guaranteed and the thrift is exploring other options, a second source said.

Representatives of Washington Mutual, TPG and the other banks declined to comment or could not immediately be reached.

Analysts have long expected the credit crisis would force weaker lenders into the arms of stronger rivals. A sale of Washington Mutual, the largest U.S. savings and loan, had been widely expected.


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[P & CA News Bot]

JPMorgan Chase May Acquire Washington Mutual After FDIC Seizure
Bloomberg - 40 minutes ago

By Ari Levy Sept. 25 (Bloomberg) -- Washington Mutual Inc. may be seized by regulators later today and parts sold to JPMorgan Chase & Co.
Regulators to Broker Deal on Washington Mutual New York Times
JPMorgan to buy WaMu - report CNNMoney.com
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[Tom Joad]

GONE.

http://www.allheadlinenews.com/articles/7012435018


FDIC To Seize WaMu Deposits, Sell To JP Morgan
ShareThis

September 25, 2008 8:50 p.m. EST

Mitchell Jaworski - AHN Reporter
New York, NY (AHN) - Struggling to find an outright buyer, Washington Mutual had their deposits seized by the Federal Deposit Insurance Corporation, according to recent reports. JP Morgan, who had been in talks to buy a piece of the savings and loan, is set to acquire the deposits.

Reports on CNBC stated that the FDIC seized deposits of WaMu after its stock plunged 25 percent on Thursday. The FDIC decided to act before a possible run on the bank occurred, essentially brokering a deal for JP Morgan to acquire the deposits.

The transaction is not expected to impact the FDIC, according to reports. Further details are still unclear; however it is likely that JP Morgan will take over a portion of WaMu's operations and some of the bank's branches.

JP Morgan officials have not commented on the reports, but said an investor conference call is set up for 9:15 p.m. ET Thursday.

[P & CA News Bot]

JPMorgan Buys WaMu Deposits as Regulators Seize Failed Thrift
Bloomberg - 1 hour ago

By Ari Levy and Elizabeth Hester Sept. 26 (Bloomberg) -- JPMorgan Chase & Co. became the biggest US bank by deposits, acquiring Washington Mutual Inc.'s branch network for $1.9 billion after the thrift was seized in the largest US bank failure in ...
Government Seizes WaMu and Sells Some Assets New York Times
2nd UPDATE:JPMorgan Buys Failed WaMu Through Bidding Process CNNMoney.com
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