Just when Congress and Treasury (to say nothing of the SEC, FDIC, and so on) manage to put out one credit or banking market fire, another erupts somewhere else. Today, it was Washington Mutual thatsent tongues wagging on Wall Street. Wamu shares dropped more than 13% after tanking 20% yesterday amid concern aboutits financing options and its large mortgage exposure. From an AP story today …
“Shares of Washington Mutual Inc. fell sharply Thursday, as concerns persisted about the company’s mortgage portfoliofollowing its report of a $3 billion quarterly loss earlier this week.
“Shares dropped 90 cents, or 19.4 percent, to $3.75 in afternoon trading. Shares are down about 72 percent for theyear.
“Late Tuesday, the nation’s largest thrift posted a $3 billion loss due to increases in its loss reserves to coversouring loans in its mortgage portfolio. The stock fell 20 percent Wednesday.
“We are concerned that credit and market conditions will continue to damage WashingtonMutual’s financial flexibility over the near to intermediate term,” wrote Citi Investment Research analyst Bradley Ballin a note to clients Wednesday. “In particular, we think a credit rating agencydowngrade of Washington Mutual’s debt to junk levels, as threatened by Moody’s, would likely raise the cost of doingbusiness and further dampen performance during the currently challenging environment.”
“Moody’s Investors Service’s said late Tuesday that it put WaMu’s senior unsecured rating of “Baa3″ on review forpossible downgrade. A rating of “Baa3″ is one notch above junk status.
Standard & Poor’s has subsequently downgraded WaMu’s counterparty credit rating to”BBB-minus,” one notch above junk status.”
Downey Financial was another big loser on the day, down 34% today and 94% year-to-date. The Newport Beach-based S&Lwas a big option ARM lender during the bubble days, and its nonperforming assets are surging as a result. Here’s anexcerpt from a Bloombergstory on the firm:
“Downey Financial Corp., the California savings and loan, replaced top management and may seek investors or buyersafter a fourth straight quarterly loss. The stock fell as much as 29 percent after Friedman, Billings, Ramsey GroupInc. raised doubt about the company’s survival.
Chief Executive Officer Daniel Rosenthal, 55, stepped down and Downey is exploring “strategic alternatives,” theNewport Beach-based lender said today in a statement. FBR analyst Paul Miller said finding a buyer may be difficultbecause of losses from adjustable-rate mortgages.
Downey was one of the biggest sellers of option-ARMs, which let borrowers defer part of the monthly payment and add itto the principal. Option-ARMs become more risky for banks when housing prices arefalling because the loan’s size can quickly exceed the home’s value. In Downey’s home state, households are foreclosingat 2.6 times the national average, contributing to a $258.9 million loss in the second quarter for the company andabout $600 million in losses over the past year.
“The company is under extreme stress given the current housingmarket situation in California,” Miller said in a report today. “With borrowers walking away from their homescoupled with the inventory overhang and weakening unemployment, defaults and loss severity will further increase.”Miller, top performer in Bloomberg’s survey of analysts, said Downey’s operations are at risk” and cut his pricetarget to $1 from $13.”
Meanwhile, some late news out of the Federal Reserve: Borrowing at the discount window jumped to a record high in theweek ended yesterday. Per Bloomberg, loans to commercial banks increased by $2.47 billion to an average of $16.4billion per day. The previous high was $16 billion per day in the week ended May 28. The daily average during the weekof the 9/11 attacks (which included the largest single day’s worth of borrowing, $45.5 billion) was $11.7 billion.
