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Originally published September 24, 2008 at 12:00 AM | Page modified September 24, 2008 at 12:26 AM

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Rescue package might aid sale of WaMu

As Congress hashes out details of the government's proposed rescue plan for troubled banks, potential suitors of ailing thrift Washington Mutual are waiting to pounce.

The Associated Press

NEW YORK — As Congress hashes out details of the government's proposed rescue plan for troubled banks, potential suitors of ailing thrift Washington Mutual are waiting to pounce.

Last week, a sale of the nation's largest savings and loan seemed imminent, as Goldman Sachs Group was brought in to help with a transaction, and a major investor removed a potential sales roadblock.

But after the government announced Friday it was working on a plan to help financial institutions remove billions of bad mortgage debt from their books, momentum toward a WaMu sale seemed to halt, with the banking industry waiting to see what Congress would do.

Industry experts say the government's proposed bailout could work in WaMu's favor.

"It's not like WaMu is dead and buried," said Roy Smith, a professor of finance at the Stern School of Business at New York University. "If anything, it looks better than it did last week."

The Financial Times reported Tuesday on its Web site that the company was in preliminary talks with "a handful of potential buyers," though it was unclear whether any intended to make a firm bid.

The newspaper, citing unnamed people familiar with the talks, said possible bidders hope for regulatory assistance to deal with WaMu's troubled mortgage portfolio, but such help remains uncertain. The discussions may cover part or all of WaMu, the Financial Times said.

That newspaper and other reports have listed JPMorgan Chase, Wells Fargo, Citigroup, HSBC, Banco Santander and Toronto-Dominion Bank as potential bidders.

The Office of Thrift Supervision is pushing for a speedy solution.

If one isn't forthcoming, it may arrange a deal that splits WaMu's assets among several buyers, the reports have said.

New plan may help

The new plan for the government to buy up to $700 billion in toxic mortgage-related assets could have a positive effect for WaMu by halting the declining price of those assets, which are at the heart of WaMu's problems.

"I thought a sale [of Washington Mutual] was going to be difficult until this proposal," said Fox-Pitt Kelton analyst Howard Shapiro.

Still, potential suitors are likely waiting for the government to make the first move on WaMu to get the best possible deal.

"The government doesn't want to take them over; no question about that," said Smith. The thrift's future "is largely left to the bidders in the auction that is being organized for it," he said.

Potential buyers are also waiting to see how much WaMu, like other banks, would have to write down the cost of its soured loans, and the impact it would have on its already thin balance sheet.

Andrew Gray, spokesman for the Federal Deposit Insurance Corp., declined to comment on any possible action the agency might take on WaMu, and bank officials have refused to address market rumors and speculation about a sale.

Federal regulators have the authority to push the management of troubled banks and thrifts toward seeking buyers, with the threat of closure at their disposal.

At the same time, a takeover by the FDIC would allow another bank to come in and buy the deposits and branches of Washington Mutual — considered the thrift's most valuable part — while the government would have to sell off its holdings of soured loans.

"Least-cost" solution

The FDIC, in general, is responsible "for ensuring a least-cost resolution" of a troubled bank, said Michael Stevens, senior vice president for regulatory policy at the Conference of State Bank Supervisors.

Enactment of a bailout plan "could alleviate some of the pressure" on balance sheets of problem banks generally, but it may come too late for financial institutions whose capital is too far eroded to be able to effectively pursue sales of assets, Stevens said.

WaMu has seen its stock price plummet 76 percent this year, in the face of mounting losses tied to troubled mortgage holdings.

Copyright © 2008 The Seattle Times Company

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