Tuesday, January 08, 2008

Stressed financial companies?

With today's market stress the ante is raised for a few. Financial companies are crushed by liquidity issues. It's not brand, market strategy or even market leadership unless they're the biggest of the big. It's whether the spigot is open. Arguably in 1991 Bank of New England was a viable bank with a great franchise and a manageable amount of real estate issues when regulators drove it into the ground with the jobs of thousands of employees. Now the market generally does the work that the government formerly did. On the radar are the current market suspects:
---Indymac Bank---IMB--formerly terrific Alt-A lender in California. Strong management, previously viewed as having conservative balance sheet but any further downturn or pressure and it's gone.
---Countrywide Financial---CFC--- The leading mortgage lender is not likely to go down, but may be forced to be subsumed by its minority investor Bank of America if its access to funds really does dry up as was rumored today.
---Washington Mutual or as they renamed themselves WAMU---WM---this is the big one. The Fed really cannot let the 7th largest financial institution in the country fail. Even thinking that they could fail may be a far fetched thought, but it is not beyond the pale of market speculation . Could it be a forced marriage with JPM? Given the West Coast branch system which JPM covets, if WM is forced to write down the mortgage business enough it could be a done deal. Overlaps in the northeast, midwest and Texas as well as in the mortgage business could lead to a meaningful expense reduction number. It should be noted that JPM's large mortgage business did not go so far into the hysteria of subprime so the knowledge is there to manage this, especially on the hedging side. Alternatively a large foreign financial institution could see WM as a way to establish an immediate large footprint in the U.S.

All speculation here.


Anonymous kf said...

Interesting hypothetical comments.
IMB, you might be right. Bank of America ending up owning Countrywide might have been their game plan in the first place. Capped out in deposit, it's another way to build their national franchise, maybe on the cheap. As to JPM and Washington Mutual, JPM's stock is not too robust either and who knows what's coming out of there. They definitely avoided that worst of the mismanagement that hit Merrill and Citi, but they are a big capmarkets player. The question do they have the capacity to do anything at all now.

2:18 PM  

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