Wall Street is speculating that the bank will go the way of Countrywide Financial and be acquired by a larger player, perhaps JPMorgan Chase.
The pressing issue for WaMu is whether it will remain independent. With Bank of America (BAC) scooping up troubled mortgage lender Countrywide Financial for $4.1 billion, Wall Street speculation is now focused on WaMu, whose shares have fallen nearly as far as Countrywide, from 45 a year ago to 13 on Jan. 16. Last week, CNBC reported that WaMu had held "very preliminary" merger talks with JPMorgan Chase. Both firms declined to comment. WaMu's stock price fell 93 cents, or 7%, to 12.46 on Jan. 17. After markets closed, the company reported a larger-than-expected $1.9 billion loss for the fourth quarter. It was WaMu's first quarterly loss since 1997.
On Jan. 17, WaMu has indicated it will post loan loss reserves of $1.6 billion for the fourth quarter, four times the amount of a year prior. Nonperforming loans were 1.65% of WaMu's assets in last year's third quarter, twice the level in 2006. That compares with 0.88% of assets at Wells Fargo (WFC), 0.63% at Wachovia (WB), and 0.43% at Bank of America—all of which have focused less on home lending.
Some 70% of WaMu's loans are in California and Florida, two states with sinking property values and an abundance of risky loans. WaMu still has about $20 billion in subprime loans, $5.8 billion of which could reset at higher rates over the next three years.
With WaMu's default rates climbing, government investigators are taking a closer look. In November, a lawsuit by New York Attorney General Andrew Cuomo accused WaMu of colluding with First American. The AG contends First American inflated the value of mortgage appraisals so WaMu could increase loan values. First American said the allegations in the complaint had "no foundation in fact or law." After the lawsuit, WaMu severed its relationship with the firm, saying it was "surprised and disappointed by the allegations in the complaint."
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The pressing issue for WaMu is whether it will remain independent. With Bank of America (BAC) scooping up troubled mortgage lender Countrywide Financial for $4.1 billion, Wall Street speculation is now focused on WaMu, whose shares have fallen nearly as far as Countrywide, from 45 a year ago to 13 on Jan. 16. Last week, CNBC reported that WaMu had held "very preliminary" merger talks with JPMorgan Chase. Both firms declined to comment. WaMu's stock price fell 93 cents, or 7%, to 12.46 on Jan. 17. After markets closed, the company reported a larger-than-expected $1.9 billion loss for the fourth quarter. It was WaMu's first quarterly loss since 1997.
On Jan. 17, WaMu has indicated it will post loan loss reserves of $1.6 billion for the fourth quarter, four times the amount of a year prior. Nonperforming loans were 1.65% of WaMu's assets in last year's third quarter, twice the level in 2006. That compares with 0.88% of assets at Wells Fargo (WFC), 0.63% at Wachovia (WB), and 0.43% at Bank of America—all of which have focused less on home lending.
Some 70% of WaMu's loans are in California and Florida, two states with sinking property values and an abundance of risky loans. WaMu still has about $20 billion in subprime loans, $5.8 billion of which could reset at higher rates over the next three years.
With WaMu's default rates climbing, government investigators are taking a closer look. In November, a lawsuit by New York Attorney General Andrew Cuomo accused WaMu of colluding with First American. The AG contends First American inflated the value of mortgage appraisals so WaMu could increase loan values. First American said the allegations in the complaint had "no foundation in fact or law." After the lawsuit, WaMu severed its relationship with the firm, saying it was "surprised and disappointed by the allegations in the complaint."
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