Seattle Bubble

WaMu is still making headlines, and in this case I don’t think any press is good press…

New York Times: Washington Mutual Is Said to Consider Sale
Seattle Times: WaMu scrambles to stay alive; it may be trying to find buyer

From the Seattle Times article:

With the wreckage from the nation’s worst financial crisis piling up around it, Washington Mutual strove Wednesday to salvage itself, reportedly considering all options up to and including a sale of the entire company.

WaMu declined to comment on what it called “rumors and speculation.” But its largest shareholder granted it a key financial concession — clearing the way for anything from a big capital infusion to an outright sale — and both The New York Times and The Wall Street Journal reported investment bank Goldman Sachs has been shopping Seattle’s biggest financial institution to potential buyers.

Any purchase of WaMu likely would lead to the loss of thousands of jobs in Seattle, at a time when unemployment is rising and the local economy is generating few new jobs.

WaMu employs more than 3,500 people at its headquarters at Second Avenue and Union Street, along with 800 people elsewhere in Seattle and 1,500 people elsewhere in the state.

WaMu’s options seemed to be narrowing almost hourly. With other troubled financial firms seeking buyers to avoid bankruptcy or federal takeover, fewer and fewer companies have both the means and the potential desire to buy WaMu.

If my basic understanding of the process is accurate (big if), any potential buyer of WaMu would be forced to “mark to market” WaMu’s entire portfolio after a sale, which means immediately taking billions of dollars of losses.

I would think that if there were a bank out there that was capable and interested in buying WaMu, they would have come forward by now.

Here’s a piece from Bloomberg News yesterday on WaMu’s troubles: Rule hobbling suitors batters WaMu stock

Shares of Washington Mutual fell 29.7 percent to a nearly 18-year low Wednesday on concern a new accounting rule could hinder attempts to find a buyer.

WaMu stock dove 98 cents to $2.32, the lowest close since November 1990. The stock of the Seattle company, the nation’s biggest savings and loan, has tumbled nearly 46 percent since the board Monday announced the ouster of CEO Kerry Killinger, and the shares are down 93 percent in the past year.

Potential acquirers ended talks to buy WaMu this year in part because the accounting rule would force buyers to compute a target’s assets at market prices instead of deriving values from measures including the purchase price, two bankers involved with the talks said.
…
Newly installed WaMu Chief Executive Alan Fishman, who sold the last bank he ran, said Monday a sale wasn’t in the bank’s future. “You don’t build a company to sell it,” he said.

Fishman was CEO of Brooklyn’s Independence Community Bank, which was sold to Philadelphia-based Sovereign Bancorp in 2006.

Others aren’t so sure.

“The market will likely view the removal of WaMu’s former CEO as the last remaining hurdle for the board to consider pursuing a possible sale,” Merrill Lynch analyst Kenneth Bruce wrote Monday to investors. Complicating a potential sale: “the poor quality of WaMu’s loan portfolio.”

Anybody out there still have money at WaMu? What’s the consensus among Seattle Bubble readers on the bank’s chances of lasting beyond this month?

There’s been quite a bit of talk about WaMu in the last week, so consider this your open thread to air your thoughts, worries, and hopes for WaMu.

(Bloomberg News, 09.11.2008)

Wall Street Journal: Washington Mutual Forces Out CEO

Kerry Killinger, who helped build Washington Mutual Inc. into the nation’s largest thrift and then presided over its rapid decline, is being ousted as chief executive, making him the latest casualty of the mortgage crisis.

For months, Mr. Killinger had fought off a growing chorus of calls for his removal. Even after Citigroup Inc., Merrill Lynch & Co. and Wachovia Corp. pushed out their chiefs over mortgage-related write-downs, and Mr. Killinger disclosed losses at WaMu of as much as $19 billion, the company’s board, dominated by associates and longtime allies, continued to back him.

The board recently got new blood in key posts and concluded WaMu needed an outsider to signal a fresh start, according to people familiar with the matter. Board leaders conducted a discreet search for Mr. Killinger’s replacement and told the CEO Thursday that they wanted him to retire, these people said.

Succeeding Mr. Killinger will be Alan Fishman, currently chairman of New York commercial mortgage broker Meridian Capital Group. Before joining Meridian in 2007, Mr. Fishman was president and chief operating officer of Philadelphia-based Sovereign Bank, the nation’s second-largest thrift.

Too little, too late?

P-I Coverage from Bill Virgin: WaMu’s woes claim CEO Killinger

Side Commentary and thoughts: Sorry I’ve been unable to post much over the summer here and at RCG.  I’ve been exceptionally busy with lots of projects and family stuff.   Plus, I’m freaking out that one of my kids is going to be a Freshman in high school starting in a week or so.   But, I’m intensely following the developments of the Agencies (Freddie and Fannie) and the changing mortgage guidelines (FHA, Conventional programs) and how it will impact the market and what it means for positioning our small business going forward.   Unfortunately, in the escrow business, our business is highly dependent upon how real estate agents and loan officers perform and have positioned their business to weather this storm.  If they do no business, we follow suit.   There are some exceptions to this, but it is mostly the way it is.

I could write lots of posts on the challenges escrow firms (true independents like our office that are not owned by mortgage brokers or real estate brokers or title companies) face when our incomes are derived from our customers (agents and lending industry) and not our paying clients: buyers, sellers and those refinancing.  It is one of the other great wonders of the world and in my view, costly to consumers.  I suppose you could say, “when in Rome, do as the Romans do.”

The IndyMac debacle was interesting because we received work from their Bellevue office.  It was interesting because about a week prior to their FDIC takeover (which many argue quite effectively due in large part to the lovely Senator from New York, Mr. Schumer’s letter to the OTS which subsequently initiated some $1.3 Billion in depositor withdrawals in an 11 day time period) we e-mailed staff that we worked with and they indicated no talk of problems at all.   Why is it that staff sometimes is the least likely to see the writing on the wall?  Anyway, the rest is history.   Losing the IndyMac work was not helpful.

Money is what drives this real estate market folks and the tougher it is to obtain financing the tougher time this market will have, both nationally and in our Puget Sound region.   Following all the developments in the local and national scene has been exhausting to keep up with, but I must comment that I’ve really enjoyed the conversations here and the active debates.

I have to confess that I have never been so fascinated by this economic-environment-lesson in business, banking, finance and how it all works.  I have learned so much, and yet still feel as if I’m not even scratching the surface of understanding it all.   I know I don’t understand it all.  If there is any discouragement or frustration I have about this correction, it is still centered and pointing clearly at the real estate industry’s moving parts (with emphasis on the lending community) for creating and fostering this mess.   There are still countless industry participants that still blame the media for this (I heard this again at a BBQ I attended a few days ago).   And, there are a lot of frustrated sellers who just can’t sell in this environment.  Got some friends in that situation.  It is not fun observing  the financial bleeding and you can do nothing, never mind the social impacts and families being broken up over finances.   The social-economic issue is for another blog.

WAMU

A few days ago Mrs. S-Crow received an e-mail from a loan officer/customer who is at WAMU.  I presume that we were one of many recipients of the e-mail that discussed WAMU’s offer of 5% CD’s which is higher than most banks and credit unions are offering.

Calculated Risk also mentioned the development this afternoon.    Lots of speculation about what this means for WAMU.

From today’s Everett Herald: Housing slump hits local banks hard

Low interest rates, the loss of the home construction boom and investor pessimism all are weighing down on bank stocks, dealing a big blow to all three of the local banks traded on Wall Street.

Lynnwood’s City Bank, along with Frontier Financial and Cascade Financial — both Everett-based banking firms — have seen their share prices decline by more than half in the past year.

They’re not alone. The nation’s biggest banks and thrifts also are suffering. Shares of Seattle-based Washington Mutual, one of the hardest hit by the mortgage meltdown, have plummeted 90 percent from their peak in 2007. The Standard & Poor’s Bank Index, which includes such national names as US Bancorp, Keycorp and Wells Fargo, has tumbled 50 percent in the past year.

Note that unlike Washington Mutual, the difficulties these local banks are experiencing can’t be blamed on making subprime loans in California. It’s all local.

Sara Hasan, banking analyst at Seattle’s McAdams Wright Ragen Inc., said the local banks are seen as vulnerable to the downturn in housing, as a substantial number of their loans have been to the construction industry.

“In the Northwest especially, it seems like we’re seeing the first wave of difficulties with the housing market,” Hasan said. “Bankers are nervous, and their investors are nervous, too.”

It seems to me that they have good reason to be nervous.

In related news, WaMu replaces president of branch network.

Washington Mutual said today it has replaced James Corcoran, president of its vast retail branch network.

Stephen Rotella, WaMu’s president and CEO, will assume Corcoran’s duties until a permanent successor is named.

(Eric Fetters, Everett Herald, 06.30.2008)
(Times Staff, Seattle Times, 06.30.2008)

There have been a lot of local real estate stories this week that are worth mentioning, but aren’t big enough to merit their own post. So it’s time for another link roundup.

Tax Assessments & Government Revenue
First up, while tax assessments may be falling in Pierce and Snohomish, it looks like they’re still on the rise in King County. Aubrey Cohen reports for the P-I: With house prices down, why are tax assessments up?.

The King County Department of Assessments recently sent Brian White a notice saying his Phinney Ridge house was worth 12.5 percent more this year than in 2007.

“We’re not thrilled, but it was not unexpected,” White said Monday, noting the increasing popularity of his neighborhood.

But the jump in value seemed to contradict the fact that the median price of a house sold in May was down 2.7 percent from a year earlier in Seattle and 6.2 percent countywide, according to the Northwest Multiple Listing Service.

Also note Aubrey’s follow-up blog post: Banging … head … against … wall.

Speaking of tax revenues, Washington state’s interim chief economist Steve Lerch predicts a continued downturn in the state economic picture thanks to the real estate bust. Rachel La Corte with AP reports via the Seattle Times: WA state income down $167 million next 3 years.

Washington’s treasury will take a $167 million revenue hit over the next three years due to the weakening economy, the state Economic and Revenue Forecast Council was told Thursday.

Steve Lerch, the state’s interim chief economist, told the council that sales and business taxes are down and real estate excise tax collections have seen a significant decline.

Lerch said that on the real estate tax collections, “we are forecasting what would essentially be the worst downturn we’ve seen in the past 25 years.”

Uh-oh, I hope the AP copyright police don’t come knocking on my door. Here’s another story on the same topic from the Olympian: State forecast indicates economic slowdown will linger. Also, if like me you were wondering after reading this article “what happened to ChangMook Sohn,” the answer is that he’s running for state treasurer.

Even Seattle Has its Share of the F-word (Fraud)
Here’s a real shocker: 6 from Seattle-area indicted in crackdown on mortgage fraud.

Six Seattle-area people have been indicted by a federal grand jury in connection with “Operation Malicious Mortgage,” a national takedown of mortgage-fraud schemes that has resulted in more than 400 arrests nationwide and losses estimated at more than $1 billion — nearly $8.4 million in the Seattle case alone.

Those indicted included a disbarred lawyer, a former bank-loan officer and a mortgage broker, according to the U.S. attorney’s office. Others include the owner of several shell corporations that “flipped” houses as part of a scheme using unqualified “straw” buyers who allowed inflated loans to be made in their names, only to default on the mortgages, the indictment says.

The case is among 144 prosecutions involving 406 people nationally.

But I thought Seattle was squeaky-clean? No fraud or flipping here, just Microsoft employees with money burning a hole in their pocket, looking to buy a modest $800k 3 bedroom. Actually the shocker is that it only involves 406 people nation-wide. Here’s hoping that they’re just getting started.

Shutdowns and Layoffs
Expect to see more stories like this as the slowdown gets rolling here in the Pacific Northwest: Developer Barclays North will fold, says founder.

Battered by the national housing slump, developer Barclays North, a real-estate powerhouse whose sales once topped $45 million, will fold July 4, the Lake Stevens-based firm announced Wednesday.

The closure, which follows a months-long scramble by founder and CEO Patrick McCourt to placate lenders, shows how the nation’s real-estate downturn is rippling through the local market.
…
Barclays North typically took large undeveloped parcels of land, obtained all the necessary permits and resold the tracts to major homebuilders.

But Barclays entered this year in default with at least 56 creditors and faced a barrage of lawsuits this spring as some lenders exhausted their patience.

And along those same lines, it’s time for yet another round of layoffs at WaMu. The Times and P-I both have stories on that one today.

Washington Mutual Inc. cut another 1,200 jobs Thursday, including 260 in Seattle, the third such round of layoffs in less than a year.

While the number of employees to be cut isn’t as large as the two most recent reductions, it’s still a reflection of the company’s continuing struggles in dealing with the mortgage finance mess and WaMu’s losses stemming from rising loan delinquencies and defaults.

“We will do what we must to return the company to profitability faster and to restore shareholder value,” WaMu Chief Executive Kerry Killinger said in a letter to employees.

And Killinger suggested the company might not be done cutting.

Sucky.

(Aubrey Cohen, Seattle P-I, 06.18.2008)
(Rachel La Corte, Associated Press, 06.19.2008)
(Brad Shannon, The Olympian, 06.19.2008)
(Mike Carter, Seattle Times, 06.20.2008)
(Drew DeSilver, Seattle Times, 06.20.2008)
(Bill Virgin, Seattle P-I, 06.20.2008)