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WAMU –Same Story But Just On A Larger Level
Greed and leverage (Stupidity) over prudence!
Where does it all end?
How much money does the Fed have to keep up on these bailouts?
How more times can JP Morgan and Bank Of America come to the rescue?
Thursday's seizure and sale to JP Morgan is the latest historic step in the Feds attempt to clean up the financial industry awash with toxic mortgage debts,CDOs and CLOs. Now there is even doubt over the so called $700 billion bailout of the entire financial system. The CME Globex futures are down -2110 at the time of this article.
There was a run on the bank when clients of WaMu withdrew $16.7 billion from their accounts since Sept. 16. This left the bank ``unsound,'' according to the FDIC and the Office of Thrift Supervision. WaMu was the second-biggest provider of option ARMs, after Wachovia Corp. Out of the $230 billion in loans secured by real estate at the end of the second quarter, $16.9 billion were subprime mortgages. WaMu, which ranked sixth among U.S. mortgage companies last year, was the 11th-biggest subprime lender in 2006.
One can make the easy assessment that WAMU traded growth over prudence.
Due to WaMu estimated losses of as much as $19 billion in the next 2-1/2 years. S&P cut the bank's credit rating twice in only nine days, leaving it at CCC. Fitch Ratings and Moody's Investors Service cut WaMu to junk this month and have BBB- and Ba2 ratings, respectively. Between the withdrawal of deposits and the ratings it was almost inevitable.
The good news however is that WaMu's branches will open today and depositors will have full access to all their account.
A simple question in which I have posed repeatedly, how many more times can bank customers have the luxury of pulling cash out of their accounts. How many more banks are in as bad of a situation as WAMU? The fact of the matter is that WAMU, has been one of the lenders hardest hit by the nation's housing bust and credit crisis, and had already suffered from soaring mortgage losses. Not all banks were as greedy nor short sighted as had been.
Another one of my simple questions is how many more times either Bank of America or JP Morgan can come to the rescue of other financial institutions. Can they digest all of these different companies? Can they integrate them? Will they be more efficient?
Hopefully they will not retrace the steps of WAMU itself. Beginning in 1995, WAMU went on a shopping spree, making 14 acquisitions by 2002 and boosting assets to more than $300 billion. WAMU was a Wall Street darling as it shares orbited almost 20 fold from 1990 to 2006. There are arguments that they imploded due to their risky lending guidelines as well as the amount of acquisitions over the years. They were swallowing almost a company a year.
What will happen if Bank of America and JP Morgan over due it and choke on all of their acquisitions? What will really happen to the US Financial system or the World Financial system if this becomes the case?
Ultimately for the prudent investor, tremendous opportunities will make themselves present. Stay liquid, reduce your compensation and debt and this crisis might be one of the opportunities of a lifetime.
Andrew Abraham
Greed and leverage (Stupidity) over prudence!
Where does it all end?
How much money does the Fed have to keep up on these bailouts?
How more times can JP Morgan and Bank Of America come to the rescue?
Thursday's seizure and sale to JP Morgan is the latest historic step in the Feds attempt to clean up the financial industry awash with toxic mortgage debts,CDOs and CLOs. Now there is even doubt over the so called $700 billion bailout of the entire financial system. The CME Globex futures are down -2110 at the time of this article.
There was a run on the bank when clients of WaMu withdrew $16.7 billion from their accounts since Sept. 16. This left the bank ``unsound,'' according to the FDIC and the Office of Thrift Supervision. WaMu was the second-biggest provider of option ARMs, after Wachovia Corp. Out of the $230 billion in loans secured by real estate at the end of the second quarter, $16.9 billion were subprime mortgages. WaMu, which ranked sixth among U.S. mortgage companies last year, was the 11th-biggest subprime lender in 2006.
One can make the easy assessment that WAMU traded growth over prudence.
Due to WaMu estimated losses of as much as $19 billion in the next 2-1/2 years. S&P cut the bank's credit rating twice in only nine days, leaving it at CCC. Fitch Ratings and Moody's Investors Service cut WaMu to junk this month and have BBB- and Ba2 ratings, respectively. Between the withdrawal of deposits and the ratings it was almost inevitable.
The good news however is that WaMu's branches will open today and depositors will have full access to all their account.
A simple question in which I have posed repeatedly, how many more times can bank customers have the luxury of pulling cash out of their accounts. How many more banks are in as bad of a situation as WAMU? The fact of the matter is that WAMU, has been one of the lenders hardest hit by the nation's housing bust and credit crisis, and had already suffered from soaring mortgage losses. Not all banks were as greedy nor short sighted as had been.
Another one of my simple questions is how many more times either Bank of America or JP Morgan can come to the rescue of other financial institutions. Can they digest all of these different companies? Can they integrate them? Will they be more efficient?
Hopefully they will not retrace the steps of WAMU itself. Beginning in 1995, WAMU went on a shopping spree, making 14 acquisitions by 2002 and boosting assets to more than $300 billion. WAMU was a Wall Street darling as it shares orbited almost 20 fold from 1990 to 2006. There are arguments that they imploded due to their risky lending guidelines as well as the amount of acquisitions over the years. They were swallowing almost a company a year.
What will happen if Bank of America and JP Morgan over due it and choke on all of their acquisitions? What will really happen to the US Financial system or the World Financial system if this becomes the case?
Ultimately for the prudent investor, tremendous opportunities will make themselves present. Stay liquid, reduce your compensation and debt and this crisis might be one of the opportunities of a lifetime.
Andrew Abraham
