Is Washington Mutual for Sale?

Rumors abound the troubled bank will sell itself after losing $5B in deposits.

ByABC News
September 10, 2008, 1:38 PM

Sept. 17, 2008— -- Washington Mutual, a savings-and-loan that has seen tremendous losses stemming from the nation's mortgage crisis, is reportedly on the auction block.

The New York Times, citing unnamed sources, has reported that an auction for WaMu arranged by investment bank Goldman Sachs began several days ago.

WaMu, meanwhile, is staying tight-lipped on the issue.

"We don't comment on rumor or speculation," a WaMu spokesman told ABC News.

Jaime Peters, an analyst with investment research firm Morningstar in Chicago, told that rumors have been swirling about a WaMu sale for months but have strengthened recently because of current market conditions.

Peters said part of what may be forcing WaMu's hand with respect to a prospective sale is the fact that it's seen a dramatic drop in customer deposits. She said the bank reported a total of $148 billion in consumer deposits in its second-quarter earnings report.

But in the third-quarter outlook it released last week, WaMu reported $143 billion in deposits, saying that the figure was "essentially unchanged from year-end 2007."

That means, Peters said, the bank must have gained $5 billion in deposits in the first six months of the year but then lost it two months later.

"About $5 billion of customer deposits," she said, "have flown out the door in July and August."

Customers, she said, are likely losing confidence in the bank because of the negative headlines they've read about WaMu in recent weeks.

Meanwhile, a decrease in deposits doesn't bode well for the bank's ability to cover the losses it sustained from its mortgage business.

"If they're losing deposits, likely their operating earnings will go down, and that means there's less money to absorb loan losses before dipping into the capital base," Peters said, "and the capital base is not strong enough to take all of the losses that are projected without those earnings."