WaMu Denies Rumors of Regulatory Moves as Shares Falter

In a rare action, Washington Mutual (WM: 3.65 +3.40%) took the step of denying market rumors that it was subject to regulatory action that had investors speculating on further trouble at the Seattle-based bank.

“Neither our primary federal regulator, the OTS, nor any other bank regulatory agency has taken any enforcement action against WaMu that we have not previously disclosed,” the bank said in a press statement issued after market close on Wednesday. “Further, the company is not currently in such discussions with any regulatory agency.”

Shares in WaMu slid nearly 10 percent in trading on Wednesday, dropping $.62 to close at $6.06.

The bank was hit late Tuesday with rumors that it may have been subject to similar regulatory action as Ohio-based National City Corp. (NCC: 4.86 -1.62%), which on Tuesday confirmed that it had entered into so-called memoradums of understanding with both the Office of the Comptroller of the Currency and the Federal Reserve Bank of Cleveland.

In early April, WaMu raised $7 billion via a direct placement of securities with an investor group led by an affiliate of TPG Capital. As part of the capital raise, the bank exited wholesale mortgage originations, as well.

The bank’s portfolio includes some $57 billion in option ARM mortgages; so-called negative amortization loans have been a fast-increasing source of losses for lenders as housing prices have fallen in key markets throughout the United States, and put millions of borrowers in the position of owing more on their mortgage than their home is worth.

Disclosure: The author held no positions in WM or NCC when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.