Thursday, September 11, 2008

Two extremely shaky banks WAMU and Lehman Bros.

Reuters reports that Lehman Brothers is looking to be purchased, with Bank of America a possible buyer.
investors remained gloomy as the steady stream of grim tidings and the dearth of information from the company stoked fears that some of Lehman's clients and trading partners might take their business to more stable firms.

"Although many investors thought it would be avoided, customers of Lehman Brothers are becoming more and more skittish in their dealings with them," said William Lefkowitz, options strategist at vFinance Investments, a brokerage firm in New York. "If this fear continues to grow, that could lead to the demise of Lehman Brothers,"

Six months since the collapse and eventual fire-sale purchase of investment bank Bear Stearns, confidence in the Wall Street business model has faded.

The stock closed down $3.03 to $4.22 Thursday after falling as low as $3.80 earlier in the day. They have lost more than three-quarters of their value since Monday and more than 90 percent from their 52-week high of $67.73 last November. [Snip]

With Thursday's stock fall, its market capitalization fell to $2.93 billion, behind once much-smaller companies like Huntington Bancshares Inc at $3.04 billion and Raymond James Financial Inc at $3.8 billion. Goldman Sachs Group Inc has a market cap of $61.8 billion.

"As much as they try to ... calm investors down, investors don't have yet the answers they need," said Rose Grant, managing director of Eastern Investment Advisors. "There's a complete lack of faith, lack of confidence and lack of trust."

The company reported a record quarterly loss of $3.9 billion on Wednesday, and said it would spin off distressed assets and sell a stake in its asset management business. But details about the size, scope and timing of the potential sales were few -- leading to fresh fears about its plans. [Snip]

The company has written down billions of dollars in assets in the last year -- largely holdings of complex mortgage-backed securities. And over the last several months, the bank has been battling rumors of defecting clients and talk of a takeover at a low price.
Atrios points to a funny piece of Schadenfreude from this. The original report is from Bloomberg:
Sept. 11 (Bloomberg) -- Argentine President Cristina Fernandez de Kirchner told Lehman Brothers Holdings Inc. to worry about its own finances, three weeks after the firm said the South American country could default within two years.

``Today the news in the papers, in all the papers, is the collapse of another bank far away in the United States -- that bank that predicted the collapse of Argentina,'' Fernandez, 55, said during a speech last night. ``They should spend more time looking at their own accounts rather than looking at other countries.''
Oh, and the other bank to watch tomorrow? Washington Mutual (WaMu).

NEW YORK, Sept 11 (Reuters) - Washington Mutual Inc (WM.N: Quote, Profile, Research, Stock Buzz) shares sank below $2 for the first time since 1990 as anxiety grew about its capital needs and survival prospects, before staging a powerful late rally.

The thrift's shares closed up 51 cents, or 22 percent, at $2.83 on the New York Stock Exchange, after earlier trading as low as $1.75. Despite the late jump, they were down 34 percent since Monday, when Washington Mutual named Alan Fishman its new chief executive. [Snip]

Washington Mutual shares are down 92 percent in the last year. Its "distressed" 5.25 percent notes maturing in 2017 fell 2 cents on the dollar to 44 cents, pushing its yield up to 18.08 percent from 15.87 percent, according to MarketAxess.


Earlier this week, Washington Mutual said its main regulator, the Office of Thrift Supervision, has stepped up its oversight into how the thrift manages risk.

"We're fully aware of the situation, and we're monitoring it," said William Ruberry, an OTS spokesman.

Fishman is a former chief executive of Brooklyn, New York's Independence Community Bank Corp, which was bought by Sovereign Bancorp Inc (SOV.N: Quote, Profile, Research, Stock Buzz) in 2006.

He became Washington Mutual's chief executive Monday, replacing Kerry Killinger, who was ousted by the board after 18 years at the helm.

Richard Bove, a Ladenburg Thalmann & Co analyst, suspended his "neutral" rating on Washington Mutual Thursday, citing uncertainty about what the OTS ordered the thrift to do.


Analysts have said the thrift may be starved for buyers because of an accounting rule that takes effect in December. The rule will force buyers to write down assets of targets to market prices, perhaps requiring them to raise costly capital.

JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) is said to have approached Washington Mutual early this year about a merger, but Killinger rejected the overture, according to published reports. Washington Mutual ended June with $309.7 billion in assets, while JPMorgan had $1.78 trillion.

Moreover, a clause in the TPG investment agreement complicates any capital raising. Washington Mutual must cover any dilution in TPG's investment if the thrift is sold, or if it raises more than $500 million of equity, for less than $8.75 per share -- within 18 months of the infusion.
So WaMu, who just replaced their long-term CEO, is looking for a buyer but has skeletons hiding in their financial reports. The stock market does not rate their chances of success highly as they just hit their 52-week low of $1.75 per share today before bouncing up a bit.

America's financial problems are not getting better. If anything, they are getting worse, but because much of the credit crisis is at its base real estate and mortgage problems, the problems do not effect the market instantly as is the case when the problems are in stocks and bonds. That's because mortgage default and foreclosure is such a long drawn out process that it can take up to a year or so from the time the owner gets into financial problems to the time of final default and foreclosure.

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