WAMU death watch

[Atash Hagmahani]

Too many substantiated reports AND unsubstantiated rumors pouring in to post all of them.

http://www.reuters.com/article/businessNews/idUSN2232254820080722?feedType=RSS&feedName=businessNews

This looks serious:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aHQxlEyBmKow

Capital Question
As losses mount, a clause in the TPG agreement makes it more costly for WaMu to raise capital or be acquired. If WaMu is sold for less than $8.75 a share or is forced to raise more than $500 million in equity, it must compensate TPG for the difference, according to filings with the U.S. Securities and Exchange Commission.
``We don't know how their investment plays out, but we also don't know how this affects WaMu to the extent they need to raise more capital,'' said Steven Davidoff, law professor at Wayne State University Law School in Detroit. ``They really can't raise equity.''
TPG spokesman Owen Blicksilver declined to comment. WaMu spokesman Brad Russell confirmed details of the TPG deal.

Despite assurances that my money is safe, the problem is that it would be a hardship to stand in line trying to get a cashier's check, and then deal with the possibility that other banks might either not cash the checks, or might put a long hold on them (as, ironically, Wamu did to Indymac checks). I wonder, too, about our ability to pay bills if the bank is seized by regulators.

Wamu is bigger than Indymac, and the FDIC blew 10% of its reserves on Indymac. This does not bode well. I would guess that if Wamu is about to go bust, the FDIC is probably already planning something, but waiting because a run on Wamu would probably provoke runs on other area banks.

[Atash Hagmahani]

Mish Shedlock's commentary on the TPG agreement:

We believe it is more accurate to call them “death spiral” securities. They work as follows. The investors in the equity raise would have their investment “protected” by a provision which states that should the bank afterwards raise money at a lower price than what they paid, these investors would be compensated retroactively by having their initial investment priced at this lower price, thereby being issued new shares for free. It doesn't take a mathematician to see how these provisions can result in massive dilution should the bank subsequently raise even a paltry amount of capital. A new offering will trigger a lower price because of the dilution it would cause, which would trigger even more dilution because of the lower price, which would then trigger an even lower price because of the even higher dilution, etc. This is why we call such securities a death spiral.

[Atash Hagmahani]

http://uk.reuters.com/article/marketsNewsUS/idUKN2530839520080725
 

NEW YORK, July 25 (Reuters) - Credit protection costs on Washington Mutual Inc (WM.N: Quote, Profile, Research) rose sharply on Friday, a day after an analyst said some creditors reduced their exposure to the largest U.S. savings and loan.
 
 Washington Mutual's credit default swaps have been pricing in rising concerns about the thrift's creditworthiness since Gimme Credit analyst Kathleen Shanley wrote in a report on Thursday that "many creditors have quietly been pulling funds" from the company.