| Is Washington Mutual worth buying? |
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| News - Hugh's Views | |||
| Written by Hugh McManus | |||
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Washington Mutual has extensive exposure to the mortgage market; there is wide-spread concern that the company is overly exposed and may suffer the same fate as IndyMac Bank--a California company which was seized by the FDIC on July 11, 2008. Management at Washington Mutual has continuously stated that the bank has no liquidity issues and that the bank does not expect any future problems. On July 25, management reported that liquidity has been boosted to $50 billion. The company no longer has exposure to the subprime market. The stock price has suffered. The price has dropped from close to $38.40 in July 2007 to $3.84 on July 25, 2008. Over the past few weeks--particularly after the seizure of IndyMac Bank--the stock has seen dramatic price swings. Trading volume is at an all time high. If the company has liquidity problems, the equity markets will not be a source of new funding. Washington Mutual has problems, real problems; it remains to be seen if those problems are fatal. At this point I think that there is a better than a 50/50 chance that the bank will be seized by the FDIC. Confidence in the bank is ebbing. The company is not, at least in the short term, worthy of consideration by a serious investor. The long term prospects for the bank are probably more sanguine. However, if the company performs well in the fourth quarter--particularly, following inevitable write downs--the company is worth revisiting.
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Washington Mutual [NYSE:WM] is the largest savings and loan association in the United States. Washington Mutual offers complete banking services to consumers and businesses. The company offers retail and consumer lending and mortgage services. The company has more than 2,500 branches or offices throughout the United States.