Why do zombie stocks like Washington Mutual still trade?
— -- A: You've probably had to sit your son down a few times to talk sense into him. This is another one of those times.
Washington Mutual is a failed lending institution. By making aggressive home loans, the thrift was one of the highest-profile losers in the housing and banking crisis. As a result, Washington Mutual as we knew it no longer exists. It was bought by JP Morgan Chase last year, at a bargain-basement price because WaMu choked on its own bad loans.
Now, on to something many other Ask Matt readers are asking: If Washington Mutual is really gone, why does it still have a stock? Also, now that JP Morgan has bought Washington Mutual, won't WaMu emerge as a stronger company?
There are several answers to your question. First, Washington Mutual's shares are all but gone. The shares were delisted from major exchanges and relegated to the informal and largely unregulated Pink Sheets market. This is pretty routine. But that doesn't mean the shares entitle you to the assets or earnings of the company. Those were bought by JP Morgan.
The shares you see on the Pink Sheets are all-but-worthless pieces of paper changing hands. At last check they were trading for three cents. That WaMu stock is being sold mostly by owners of the old Washington Mutual shares locking in losses so they can take capital losses on their taxes. And the buyers of those shares? Well, I'm not sure what they think they're getting.
I suppose buyers are hoping there will be some assets left for common shareholders to claim. But that's highly unlikely, since anything worthwhile is owned by JP Morgan.
And don't take my word for it. Check out this posting by the Securities and Exchange Commission that explains how getting money from a failed company is unlikely.
Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Click here to see previous Ask Matt columns.
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