NEW YORK (AFP) — US officials are fiercely putting out a series of economic fires with all eyes now focused on the fate of Washington Mutual after AIG became the latest company to be thrown a lifeline.
According to the New York Post, US banking regulators are actively searching for a candidate to take over the Seattle, Washington-based bank amid fears it could be the next to be felled by the economic maelstrom.
The New York Times said Wednesday that the bank had hired Goldman Sachs to discuss a possible sale, with possible bidders including institutions such as Wells Fargo, JPMorgan Chase and HSBC.
Washington Mutual, the country's largest savings and loan, is now seen as one of the firms the most exposed to the current mortgage crisis sweeping the ailing housing sector.
Known as WaMu, it has seen its stocks savaged in a bloodbath on US markets in recent weeks, losing some 85 percent of their value this year. Shares plunged again Wednesday on the stock market losing some 13.36 percent to end the day at 2.01 dollars.
The west coast bank's total share value is now set at less than four billion dollars.
The Wall Street Journal said Wells Fargo and Citigroup had shown an initial interest. But if no buyer emerges, the government could be forced to place the bank into conservatorship, the New York Times said.
"The solution is an assisted transaction whereby Washington Mutual is sold to a second party and the FDIC covers all losses above a specified level," said Richard Bove, from Ladenburg Thalmann.
Bove was referring to the Federal Deposit Insurance Corporation (FDIC) which insures deposits in banks up to 100,000 dollars.
Even as the housing market was spiraling into a crisis, Washington Mutual continued to increase its reserves for bad debt, which hiked from 1.53 billion dollars in the fourth quarter of 2007 to 10.3 billion nine months later.
Having written off some 5.9 billion dollars in the second quarter due to the mortgage crisis, WaMu warned of a further depreciation of 4.5 billion dollars in the third quarter.
Anxious clients have already begun to show their concern.
The Financial Times reported Tuesday that deposits have dropped by five billion dollars since June -- a sign of panic which could see a rush on the bank as account holders line up to withdraw their money.
Bove said Washington Mutual has a huge customer base, with the average account holding some 5,200 dollars.
Like Lehman Brothers, which filed for bankruptcy on Monday, or American International Group (AIG), handed an 85-billion dollar bailout by the Fed, WaMu is caught in "a vicious circle," said Marc Pado from Cantor Fitzgerald.
The same causes are triggering the same results: a fall in share value reduces the value of the bank's assets and thus cuts the value of its collateral when it seeks fresh cash.
"The other side of the equation is, who has the liquidity to buy WaMu when everything is such in question?" said Pado.
On Monday, when all eyes were still on AIG as it struggled to stay afloat, ratings agency Standard & Poor's lowered its debt rating for the major West Coast bank to 'BB-' from 'BBB-.'
That came a week after Moody's downgraded its debt to non-investment or "junk" status.
To add to its woes, Washington Mutual chief executive Kerry Killinger was forced to step down last week after 18 years at the helm.
Given all these factors, it will be "difficult to find someone to step up to buy WaMu," warned Pado.
Copyright © 2013 AFP. All rights reserved. More »