Dr Martin Weiss Confirms Views on WaMu and Wachovia

Posted on July 31st, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

We have all been talking about ‘The Pay Option ARM Implosion’ that may make the Subprime Implosion look like a walk in the park in bubble states like CA. While loan defaults across subprime are declining, defaults in the Alt-A space, led by Pay Option ARMs are surging. This will wipe out higher priced regions, as the mortgage ooze spreads from outlying subprime areas into more affluent suburban and urban areas. Please see my June CA Home Sales Report and June CA Foreclosure Report for more detail on this.

We all can see what has happened to the stock prices of the largest Pay Option ARM lenders such as American Home Mortgage, Countrywide, IndyMac, WaMu, Wachovia, Capital One (Greenpoint), Downey Savings, First Federal, BankUnited and even Lehman, Bear and Deutsche Bank to some degree but the latter more on the conduit level. All have performed horribly and all were Pay Option ARM loaded. This is no coincidence.

Now Dr. Martin Weiss, from Weiss Research, adds his hard facts today, which confirms what many have been saying for a year. The WaMu and Wachovia clips below are only part of the story and I suggest you read the entire thing. Dr Weiss’ Unthinkable Truth; Undeniable Reality is a great, quick read.

Many things he points out are very similar to the research piece I released last week called WaMu: Liquidy Options are Running Low. To get a great overview of both WaMu and Wachovia, read both. -Best Mr Mortgage

Washington Mutual In a Death Spiral?

Washington Mutual, America’s largest savings and loan, is unfortunately, also one of the nation’s largest subprime lenders.

A direct consequence: It appears to be in a death spiral, losing $3.3 billion in the second quarter … admitting to losses of as much as $19 billion this year … and probably on its way to losses of an estimated $26 billion.

That estimated loss is over four times its total market value as of Friday’s close … twelve times its yearly earnings in the best of times.

Can it get a new capital infusion to stave off failure?

Perhaps. But on April 8, Washington Mutual already got an injection of $7 billion from private equity firm TPG Capital. And now, less than five months later, an amount equivalent to TPG’s entireinvestment has been more than wiped out with the plunge in Washington Mutual’s shares — to a meager $3.82 on Friday.

What’s worse, the TPG deal restricts Washington Mutual’s ability to raise new, desperately needed capital going forward. And further impairing its ability to raise capital, Moody’s announced that it is reviewing the thrift for a downgrade to junk status.

Here’s the big problem: As of the latest reckoning, Washington Mutual has $214.6 billion in residential mortgages on its books. And among those, more than three-quarters are in non-traditional categories — option ARMs, subprime loans, home equity loans and multi-family mortgages. Less than one-quarter is of the traditional, single-family prime variety.

Washington Mutual: Nonperforming loans surge!

Just in option ARMs alone, Washington Mutual has $52.9 billion, one of the biggest such portfolios in the industry. Moreover, 62.5% of its option ARMs are in two of the hardest hit states — Florida and California.

Nonperforming assets are growing by an average of 36% each quarter. If they continue to grow at that rate, they could reach a whopping 6.7% of total assets by year-end.

Investors are pulling out. Rumors are swirling that creditors may be doing the same. Bankruptcy looms.

Wachovia Also Suffering Huge Losses

Wachovia, the nation’s fourth largest bank with nearly $800 billion in assets, is also in danger. Its staggering $8.9 billion loss reported last week may be just the tip of the iceberg.

Its big blunder: The acquisition of subprime lender Golden West Financial for $24 billion at the very peak of the real estate market in 2006.

The net result for the bank: It’s now stuck with option ARMs valued at $122 billion concentrated in California, the state with one of the worst mortgage default rates.

Net result for shareholders: Over $55 billion of their wealth has been wiped out since the acquisition — more than double the total purchase price of Golden West.

The big problem going forward: Wachovia has $231 billion in residential real estate loans on the books. But only 22% of these are classified as “traditional mortgages.” Most of the rest are higher risk.

Source: Weiss Research – Unthinkable Truth; Undeniable Reality

Other Related Mr Mortgage Reports

S&P Does Hatchet Job on Prime, Alt-A and Subprime RMBS

Mr Mortgage: June CA Home Sales Report

Mr Mortgage: June CA Foreclosure Report

Mr Mortgage: Mortgage Implosion Round 2: The Pay Option ARM

Fannie/Freddie: Massively Underestimated Risks

19 Responses to “Dr Martin Weiss Confirms Views on WaMu and Wachovia”

  1. Unlike Bear Stearns and Lehman, WAMU is NOT a primary dealer in government securities and is by no stretch too important to fail.

    Here is a list of the primary dealers in governments that the Fed converses with each morning. Think of this list as the “underwriters” of Treasuries. Every morning the Open Market desk of the Fed in New York converses with each one to discuss the bond market and how various repurchase agreements and Treasury auctions are likely to price.


    As such, it is clear to me at least that the authorities will let the market (and the regulators) decide what to do with WAMU

    Just my opinion.

    Tony Buzan

  2. What is it in the system that allows CEO to avoid general provisions for these securities over and above mark to market write downs. Banks used to responsible make general provision anticipating losses on normal loans as a downturn matured. But they do not seem to be doing this now (if anything the reverse). There should be a big stick in the hands of the listing exchange and the auditors but I don’t see any being wielded. This is the current scandal.

  3. Corrected

    What is it in the system that allows CEOs to avoid general provisions for these securities over and above mark to market write downs. Banks used to be responsible decades ago and make general provisions anticipating losses on normal loans as a downturn matured . But they do not seem to be doing this now (if anything the reverse) and they ignore the forecasts of their own in house economists in so doing. There should be a big stick in the hands of the listing exchange and the auditors but I don’t see any being wielded. This is the current scandal. At least S&P and now rating CDOs with
    some anticpationn buit-in. Years too late but welcome all the same.

  4. The next step: Emergency funding for WAMU and Wachovia.

    The auditors ? These people are paid by the same people to cook the books. They do not care.

    They take the money and ask no questions. Well they ask the questions and then close their eyes. It’s not important anyways. There were auditors at ENRON, at PARMALAT, at WorldCon, at TYCO, at NORTEL.

    Auditors in these very special times of American Weimar Republic, are about the same as clowns. Please remember. These are no ordinary times.

    Auditors are irrelevant in this context. They don’t count. They just count to make up lies.And by the way, it will be the next step by the FED; emergency funding for WAMU, for Wachovia and all the bunch.

    The SEC is of no use either. Watch out. Maybe the next step will apply the Patriot Act against people who speak against banks and bankers. I would opt for the death penalty against somebody asking too much questions about WAMU or a stay at Guantanamo. Mr. Weiss is one fine honest man, like you Mr. Mortgage.

  5. Mr Mortgage; do you agree with the headline of this story?


    “California’s Discount Foreclosure Sales Point to Housing Bottom”

  6. […] Dr Martin Weiss Confirms Views on WaMu and Wachovia […]

  7. So what do you make of today’s bounce in the stock price and huge cash infusion by British hedgefund for WAMU??

    Seems like a drop in the bucket…….??

  8. Marc, let’s touch base in February of next year as to whether auditors make any difference.

    By then all AUDITED financials will come out for all these companies. Indeed, after Arthur Andersen’s demise (and they were HUGE, one of the big 4) it is the auditors who are running the show.

    Let’s revisit it then.

    Just my opinion. It’s easy to point fingers. Let’s see what happens.

    We are falling off a cliff in slow motion. We have a VERY long way to go.

    When we land a few years from now, you can help pick up the pieces.

    Just my opinion.

  9. LillyK – I just heard that it was revealed that the British Hedgefund [Toscafund] didn’t just invest in WAMU, they were actually at a regulatory threshhold that forced them to DISCLOSE their position held in WAMU. It was falsely spun in the media as a recent cash infusion when in fact it was a position already held by Toscafund.

    WAMU has been in a death spiral for months and then this news suddenly arrives? I believe their current investor wouldn’t even allow them to take such a position anyway, and even if I’m wrong about the whole thing, wouldn’t it be disaterously dilutive to the shareholders and drive the stock even further into the dirt?

    Can anyone say blatant stock manipulation?

  10. Who is Dr Martin Weiss? The head of “Wiess Research”. Are we suppose to know him and give him some type of credit. Is anyone accounting for the fact that the Indices in which these loans are tied have gone down dramatically in the last year. In addition some have been forecast to stay low for another year. This will delay the resests for a longer period of time.

  11. I think WM will emerge from this mess stronger than any of the major central banks or investment houses (the major’s we know are already insolvent). I believe its vast deposit base outstrips any of the majors and rumors (Gimme credit etc) are bringing this company down to its knees. As I posted elswhere, if they can survive the rumors they will emerge more powerful than JPM used to be. We will see.

  12. Yes speccially with a name like Toscafund.
    Rigoletto as a hedge fund manager or is it Palliachi ?
    A lot of funny and pretty disgusting things are presently going on. “J’en perds mon latin.”

  13. Thanks for your thoughts acecap but I think you are mistaken. Look at their balance sheet and loan portfolio. Their deposits are rather small, their liquidity very shallow and toxic loan portfolio huge. This is a prime example of insolvency. Please see the details.


  14. Well, why is this company still in business ? Why do people still do business with a bankrupt bank ? Blindness ? Stupidity ? Ingnorance ? Kill the Wamu.
    You take a rifle a pow! just between the eyes. And the FDIC will be on the hook for how much ? Another 8 billion ? OK. We read it. It’s darn clear. But again why is it still in business ?

  15. […] Dr Martin Weiss Confirms Views on WaMu and Wachovia […]


  17. […] Dr Martin Weiss Confirms Views on WaMu and Wachovia […]

  18. […] Dr Martin Weiss Confirms Views on WaMu and Wachovia […]

  19. […] Dr Martin Weiss Confirms Views on WaMu and Wachovia […]

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