Recently, Washington Mutual’s shares sank to a 17-year low and if the company does not improve its financial situation by finding a buyer or raising enough capital to bounce back from mortgage woes, repercussions could be dire. Analyst attribute the fall in stock price partially to the situation with financial giants such as Lehman Brothers. WaMu has already lost billions of dollars and predicts that losses due to the mortgage crisis could amass to $ 30 billon within the next couple of years. In the last year alone, the company’s shares have fallen 93 percent. Last week Standard & Poor’s lowered WaMu’s credit rating to one level above the junk rating.
What implications does this have for us – the taxpayers?
Bank analysts have speculated that if WaMu doesn’t find a buyer then taxpayers will have to pay a hefty bill of $24 billion to bail the company out. This bill will come from the guarantees of the government for federal mortgage loss to persuade buyers to purchase WAmu. Some potential buyers include Wells Fargo, HSBC and Royal Bank of Canada and the Royal Bank of Scotland.
Where did WaMu fail?
The previous CEO Kerry Killinger accelerated WaMu’s rapid expansion by pursuing the questionable areas of the amortization mortgage business.
Currently the bank’s balance sheet holds the following:
* $52.9 billion in Option ARM mortgages.
* $60.4 billion in HELOC loans.
* $16.1 billion in subprime mortgages.
Analysts think that the company will lose over 30 billion in defaults over the next year.
Washington Mutual lacked enterprise risk management. Just this week, the company announced an agreement with its chief U.S. regulator, the Office of Thrift Supervision (OTS), calling for better risk management and compliance. The company took a reactive approach instead of a proactive one. Instead of combating risks before they occurred, risk management is being used as an afterthought.
Links:
http://news.yahoo.com/s/nm/20080910/bs_nm/washingtonmutual_dc
http://www.nypost.com/seven/09142008/business/wamu__no_wampum_129032.htm
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