Washington Mutual had an erratic day on the New York Stock Exchange Friday after reports circulated that the bank would be riding off into the sunset with JPMorgan Chase. But there may be no fairytale ending for WaMu. Now the Street is waiting to see if the government will intercede or if WaMu is as sound as it claims to be.
Washington Mutual (nyse: WM - news - people ) dropped 2.2%, or 6 cents, to close at $2.77, after reports that the thrift might be bought were denied. The Seattle-based savings and loan has lost $1.27 since Monday and $32.23 in the last 12 months.
JPMorgan Chase (nyse: JPM - news - people ) would be a logical buyer because it expressed interest earlier in the year when it offered to buy Washington Mutual for $8 per share. That was a discount to the $8.75 it traded for then, but a handsome premium to the 2 bucks and change it trades for now. Well Fargo and SunTrust Banks and others were also in the running to buy Washington Mutual back when it was on the block a half year ago.
The stock had fallen earlier Friday after several analysts lowered their ratings of the thrift after Moody's Investors Service lowered Washington Mutual to below investment-grade status due to "reduced financial flexibility, deteriorating asset quality and expected franchise erosion." Fitch Ratings also lowered its rating.
Executives have insisted that the firm is not for sale, but as its balance sheet deteriorates a rescue seems to be increasingly necessary to allow the savings and loan company to ease pressing capital requirements that stem from the mortgage crisis.
In a bid to calm the Street’s anxiety, Washington Mutual made an unorthodox move Thursday, releasing third-quarter projections six weeks early. It said losses from home loans could reach $19.0 billion through 2011 with $2.7 billion in write-offs in the third quarter alone. Despite its woes, the thrift insists it has "sufficient liquidity and capital to support its operations while it returns to profitability." It claimed it had $50.0 billion of liquidity from "reliable funding sources."
The developments come in the wake the firing of Chief Executive Kerry Killinger late Sunday, and WaMu being placed under special federal regulatory supervision. (See "Fresh Eyes On WaMu.")
"We're aware of it and we're monitoring it," said William Ruberry, a spokesman for the Office of Thrift Supervision, WaMu's primary regulatory, on Thursday.
This comes at a time when the Street is facing fears that Lehman Brothers Holdings is facing demise. The financial industry is hoping a solution to the firm's credit problems will be shored up by the opening of the markets on Monday.
