Tuesday, December 11, 2007

Washington Mutual (NYSE:WM): The stock is headed lower

Couple of firms comment on Washington Mutual (NYSE:WM) following negative news out last night:

- Citigroup notes WM announced several steps to navigate the more difficult mortgage environment, including a capital raise, dividend cut, layoffs, and a reorganization of its national mortgage businesses. While they expected some of these measures would be needed, the magnitudes are generally worse.

WM's desperate measures, incl dilutive capital and mortgage restructuring, reflect a poorly managed business & excessive exposure to subprime & 2nd lien HE. While capital & liquidity should now be stable, there's little left to support any NT growth. Citi is cutting '07, '08 & '09 EPS ests to $0.08 gain, $0.08 loss, and $1.40 gain, lowering TP to $15 and rating to Sell from Hold.

- Piper Jaffray is lowering their tgt to $20 from $22 saying WM's outlook for expected credit costs spikes higher, but they believe credit costs could potentially go even higher.

Maintains Neutral; while mortgage segment continues to plague WM, retail and credit card segments have been relative bright spots, which should provide support to the stock.

- FBR notes that given WM's exposure to $58 bln of Pay-Option ARMs, $62 bln of HELOCs, $20 bln of subprime mortgages and $40 bln of managed credit card receivables, they believe the current capital raise will be insufficient to get through the next few quarters, and expect further capital raises in coming months. Cuts tgt to $12 from $14.

Notablecalls: I suspect WM is headed lower here. We have an analyst from Punk Ziegel out speculating that JPM may be looking to buy WM here. I think this is punk and WM is headed lower as the rumor dissolves over the next hour. Is there any reason to by WM here? No!


dcxavier said...

I've been following WM for a couple of years now, Since they bought out my Providian position. Here's what you need to know.

On 11/15, the BOD modified the rules for deferred compensation. Prior, it couldn't be collected until after retirement. Now, the execs can collect all deferred money next July 1. My opinion of management changed from incompetent to thieving pigs at that point. KKK's job is keep WM from BK prior to July 1, otherwise the execs become unsecured creditors.

We could discuss how management went almost two full months before increasing loss estimates. In Q3 they had to raise it twice, how they *pulled money out* of reserves to make numbers in Q2, etc., etc. Cramer even has KKK on his wall of shame, and stated that his management of WM has a major role in causing the Fed's to cut interest rates. But from an investment point of view, the BOD's actions tell you all you need to know.

notablecalls said...

Ouch! Man! That hurts!