Washington Mutual Inc’s options may be dwindling as potential bidders shy away from making an offer because it's not clear how much the proposed $700 billion US bank rescue package will benefit the Seattle-based lender.
WaMu has failed to attract a bid from at least five banks, including JPMorgan Chase & Co, in the week since it put itself up for sale. WaMu next approached Carlyle Group and Blackstone Group LP, two people briefed on the matter said. Those talks are preliminary, and hinge on the government's role in helping WaMu, which faces an estimated $19 billion in bad loans, the people said, speaking anonymously because the discussions are private.
“A WaMu deal is likely frozen until the bailout gets worked out,” said Steven Kaplan, a finance professor at the University of Chicago Graduate School of Business. “People aren't in a hurry to make any decision until they know what’s coming out of Washington.”
WaMu is under increasing pressure to strike a deal as its stock sags and ratings companies pummel its debt. Standard & Poor’s yesterday cut WaMu's rating for the second time in nine days, dropping it to CCC from BB-. WaMu's regulator, the Office of Thrift Supervision, and the Federal Deposit Insurance Corp, which guarantees customer deposits, have declined to comment.
Blackstone spokesman Peter Rose and Chris Ullman at Carlyle declined to comment. Both firms are based in New York. Brad Russell, a WaMu spokesman, declined to comment yesterday. WaMu has said it is “well capitalised” with $50 billion in liquidity.
‘Massive Assistance’: “We doubt that any sale will occur without massive assistance from the FDIC, which normally waits until a failure,” Egan-Jones Co. Ratings Co wrote in a report yesterday. “Without timely assistance, WaMu will fail.”
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Besides JPMorgan, potential bidders have also included, Citigroup Inc, Wells Fargo & Co, Banco Santander SA and Toronto-Dominion Bank, a person familiar with the matter said earlier this week. All five banks have declined to comment. The Wall Street Journal, which earlier reported the private-equity talks, said Santander has withdrawn from consideration.
Also weighing on a potential bid from Carlyle and Blackstone are federal regulations that may limit private-equity firms to a non-controlling role in bank investments, as opposed to the full control that buyout firms typically seek. David Bonderman’s TPG Group Inc led a $7 billion investment in WaMu in April whose value has been almost completely erased.
WaMu fell 26 cents, or 11.5 percent, to $2 at 1 p.m. in New York Stock Exchange composite trading. The stock skidded about 85 percent this year, the biggest decline in the 24-company KBW Bank Index. WaMu is the only junk-rated company in the index.
Unlike bankrupt Lehman Brothers Holdings Inc. and Bear Stearns Cos., which was absorbed this year by JPMorgan, WaMu has consumer deposits that provide a cash cushion. Of the bank's $188 billion in deposits at the end of June, $143 billion is insured by the FDIC, which fully protects accounts with $100,000 or less, according to FDIC data.