Washington Mutual Inc., the largest savings and loan company in the United States, might be the next big financial institution needing a federal government lifeline, analysts say.
The Seattle-based company is facing large financial writeoffs in the ailing U.S. home mortgage market and a plunging share price in the tumultuous stock market.
"There's a very good chance that they are the next one to fail," Charles Lemonides, chief investment officer at Valueworks in New York, told Bloomberg TV.
Currently, the U.S. government is polling the country's more stable financial institutions, such as Wells Fargo & Co., J.P. Morgan Chase & Co. and HSBC Holdings PLC, to gauge interest in buying the besieged company, affectionately known as WaMu.
Washington Mutual is facing large financial writeoffs in the ailing U.S. home mortgage market and a plunging share price in the stock market. (David Karp/Associated Press) The reported talks come one day after the U.S. Federal Reserve grabbed 80 per cent of failing insurer American International Group Inc. in a historic $85-billion US government takeover.
On Monday, the bankruptcy of Lehman Brothers and the takeover of Merrill Lynch & Co. by Bank of America sent stocks plunging as both the Toronto Stock Exchange's main index and Dow Jones industrial index lost more than four per cent of their value.
Late Tuesday, the U.S. central bank took over AIG, a move designed to assuage investors' shattered nerves and bring some stability back to stock trading.
Now, the market's attention is turning to the fate of WaMu.
For its part, the company said it is in relatively decent financial shape.
"The company expects its capital ratios at quarter-end to remain significantly above the levels for well-capitalized institutions and continues to be confident that it has sufficient liquidity and capital to support its operations while it returns to profitability," Washington Mutual said in a financial update the week before the crisis on Wall Street began.
But so far, investors are not buying the company's reassurances or the potential for government intervention.
Shares of Washington Mutual closed down 31 cents, or 13 per cent, at $2.01 on the NYSE. The firm has lost more than 80 per cent of its stock value so far this year.
What stock watchers see is a company losing money, $3.33 billion US in the second quarter of 2008. It lost a further $1.14 billion in the first quarter of the year.
That compares unfavourably with the second three months of fiscal 2007 when the regional savings and loan company earned $830 million.
More ominously, Washington Mutual wrote off $2.17 billion in non-performing loans, mostly in defunct mortgages, in the second quarter.
These writedowns came fast on the heels of the first quarter when Washington Mutual took another $1.37 billion in failed mortgages off its financial books.
As an indication of how exposed the company is in the teetering U.S. home markets, Washington Mutual had assets of $309.7 billion, according to its most recent statement.
The firm held $181.5 billion, or 58 per cent of its total assets, in some form of home lending.
