Washington Mutual rep. says they're stable

September 17, 2008 12:00:00 AM PDT
There was a stoic close on Wall Street Wednesday that capped off a 450 point loss, bringing the Dow down 800 points, which is more than seven percent this week alone. So with another terrible close on Wall Street word of more trouble is spreading.

The word on Wall Street is that the Government is looking for a buyer for Washington Mutual. Some possible bidders could include Wells Fargo, J.P. Morgan Chase, and H.S.B.C.

ABC7 spoke with a representative from Washington Mutual who said the bank is stable, but that's not what some economists are saying or what the market is reflecting.

"The entity is hemorrhaging cash quarter over quarter," said Professor Jon Fisher, from the University of San Francisco.

This is just one reason why Fisher, thinks Washington Mutual could be the next major financial institution to go down.

Shares of Washington Mutual dropped 13 percent Wednesday, closing at just over $2 a share. And in the first two quarters of this year, WaMu has lost nearly $4.5 billion.

Still, the company insists rumors of a failure are unfounded and having access to $142 billion in cash proves WaMu is stable.

Washington Mutual released this statement on Wednesday saying, "We have ample capital. When the stock market is as volatile as it is, people tend to associate the price of a company's stock with its financial soundness, but stock price alone doesn't determine the strength of a company."

"Regardless of the balance sheet or the state cash reserves of some of these financial institutions, the perception is the entire business model is broken! The equities are being traded at below $5 a share," said Jon Fisher.

Still, perception doesn't always prompt immediate action on Main Street.

"It's probably too early to tell. I mean Wachovia was supposedly going under and they're building like crazy so it's hard to say. I'm not moving my money though, I'm staying here," said Donna Standridge, a WaMu customer.

"I'm not concerned just looking at it parochially, FDIC is going to take care of me," said Wes Viets, WaMu a customer.

As for who will take care of Washington Mutual if it needs help, economists agree it should not be the Federal Government this time. Instead, a takeover should take place, like the one brokered between Bank of America and struggling Merrill Lynch, earlier this week.

Rich Lyons Ph.D., the dean of Haas School of Business, says too much speculation could make matters worse.

"We do not want to be panic mongers. In many cases in financial markets, you can get self-fulfilling effects that do damage to people's lives and their jobs," said Lyons.

Meantime on Wednesday, there is talk of more bank consolidations to come. The Wall Street Journal is reporting that Morgan Stanley has held early discussions about a merger, with Wachovia and another bank.


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