Over the last year, shares in Washington Mutual (WM) are down more than Lehman (LEH). It is distinction that defiles the managements and boards of both companies.
Washington Mutual’s days as an independent firm may be drawing to a close, unless there is a miracle reversal in the fortunes of the housing market.
WaMu’ market cap is only $3.4 billion. Its stock is down 22% today.
Nothing may be wrong with WaMu’s consumer and business banking operations. The credit card and investment management divisions probably also hold their own. Unfortunately for WaMu shareholders, these operations cannot be pulled away from the mortgage division. It has a negative value which must be in excess of $10 billion. In other words, if WaMu wanted to give it away, the mortgage business would have to go with a check for several billion dollars. The big bank does not have that kind of money, so it is stuck with the liabilities.
Within the next month it is likely that the federal government will pay a visit to WaMu. It may offer aid in breaking the bank into two pieces, one of which would hold the mortgage-related paper that weighs on the whole enterprise.
Common shareholders will be left with pennies, and that is if things go well.
Douglas A. McIntyre
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