Salar posted on September 25, 2008 16:28
Even as Washington moves to bail out financial institutions, the fortunes of Washington Mutual have spiraled downward. On Wednesday,
Standard & Poor's Ratings Services downgraded Washington Mutual Inc.'s creditworthiness further into junk territory Wednesday, noting the increased likelihood that any sale of the company would only be done in piecemeal fashion.
The fate of the ailing Seattle-based thrift has hung in the balance for weeks, as investors question the potential for a sale or government intervention in the face of WaMu's plunging stock price — which has fallen 83 percent so far this year.
S&P noted that in the stressed financial services sector, there are few potential buyers not struggling with their own capital constraints and mortgage debt issues, narrowing the possibility for an outright takeover of the entire thrift. But a carve-up of Washington Mutual would increase the risk of default for creditors of the holding company, because the bank's stable deposit base would be gone.
Washington Mutual insists that it is well-capitalized and has adequate access to funding and noted “the rating actions do not affect the safety of customer deposits, which are insured up to the limits allowed” by the federal government. Washington Mutual spokesman, declined to comment on speculation about a possible sale. Still, shares fell 94 cents, or 29 percent, to $2.26 a share on Wednesday, leaving them down 83 percent this year.
The government’s entrance suggests the sales process may be entering a new phase after the bank struggled to find an interested buyer. Washington Mutual had vowed that it could remain independent, but it quietly hired Goldman Sachs early last week to identify potential bidders.
Among the banks that have expressed interest in buying all or part of Washington Mutual are Citigroup, JPMorgan Chase, HSBC, Banco Santander, and Wells Fargo. It is unclear what form of assistance federal regulators will now offer.
Analysts suggest that Washington Mutual, which plunged into the subprime mortgage and credit card business over the last few years, could rack up more losses totaling $30 billion or more.