Last updated: September 23, 2008 10:20 am

WaMu persists in search for a buyer

Washington Mutual was under mounting pressure from regulators on Monday to reach a deal with prospective buyers as that would put the beleaguered US bank in stronger hands.

The Office of Thrift Supervision is pushing for a speedy solution, said people familiar with the talks.

If no outright buyer emerges in the coming days, the regulator could push to broker a deal that would split WaMu between several banks. The consortium would share WaMu’s attractive deposit base and retail branch network, and would also share the bank’s troubled mortgage portfolio.

The situation became increasingly urgent on Monday as Moody’s cut WaMu’s financial strength rating and ratings on its preferred stock, as well as the rating for its covered bonds, amid concerns over the bank’s capital. “We believe WaMu’s capital is insufficient to absorb its mortgage losses,” said Craig Emrick, analyst at Moody’s.

The rating agency cut the bank holding company’s credit rating to junk earlier this month.

Five banks last week came forward to evaluate Washington Mutual’s financial records as part of an auction process run by WaMu’s adviser, people familiar with the matter said, including JPMorgan Chase, Wells Fargo, Citigroup, HSBC and Banco Santander.

While talks are continuing with a few potential buyers, and proposals have been exchanged on both sides, it was unclear whether any intended to make a firm bid for WaMu. The Seattle-based bank on Monday appeared no closer to exclusive talks with any of the parties.

Some of the banks looking at WaMu’s books have backed away from making an offer for the whole bank, but remain interested in absorbing pieces of the bank at a later stage, say people familiar with the process.

Citi, JPMorgan, Wells Fargo and Santander declined to comment. HSBC was not available for comment.

WaMu shares fell 21 per cent in early trading on Monday as hopes of finding an outright buyer for the bank appeared to fade.

One challenge for an outright sale of WaMu is that the acquiring bank would have to take on WaMu’s troubled mortgage portfolio, as well as the bank’s litigation risk.

Goldman Sachs is conducting the auction for Seattle-based WaMu, which is the sixth largest US bank, with $310bn in assets.

JPMorgan made an offer for WaMu this spring but was rebuffed.

TPG, the private equity firm that led an investor group that put $7bn into WaMu in April, last week tried to facilitate a sale of the ailing bank by waiving its right to be compensated for dilution from any future capital-raising.

Additional reporting by Henny Sender in New York

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