WaMu Shares Jump on Purchase Rumor; Buzz Short-Lived

Pressure continued to mount Thursday for troubled thrift Washington Mutual (WM: 32.30 +0.40%) as it remains under-the-gun to find a buyer, or reportedly face regulatory action. The thrift was reportedly considering a deal with private-equity buyers, according to a report Thursday morning in the Wall Street Journal.

WaMu’s exploration of potential money players willing to do a deal reportedly turned up Carlyle Group LLC and The Blackstone Group (BX: 14.98 -1.96%), according to sources that spoke with the Journal. The story suggested that the two firms would team with long-time bank investor Gerald J. Ford. In 2002, Ford made a small fortune selling Golden State Bancorp, a California thrift, to Citigroup Inc. (C: 4.20 -1.41%).

Speculation of a potential deal sent WaMu shares sky-rocketing early Thursday, up 12 percent to $2.65 immediately upon market open, but the buzz didn’t last; shares were at $1.70, down nearly 25 percent, when this story was published.

Earlier this week, a source close to the FDIC suggested to HW that regulators at the OTS were putting pressure on WaMu to find a deal before Friday of this week. “Either a deal gets done this week in the private market, or a deal will get done via the FDIC,” our source said. Such rumors about WaMu’s future, however, have been common in recent weeks.

Under such pressure and with no clear deal in the works yet, a split-sale is looking like an increasing possibility. That increasingly likely scenario led every major ratings agency to slash its ratings on the bank holding company earlier this week. See HW report.

Potential purchasers are likely to want to see an FDIC takeover of the bank, sources say, which would allow a purchaser to acquire branches and deposits — the “good” part of WaMu — while leaving the government to manage the liquidation of the more troublesome loan portfolio.

WaMu’s $231.1 billion loan portfolio includes $52.9 billion in option ARMs and another $62.5 billion in home equity loans and lines of credit. Total nonperforming assets jumped to $11.2 billion at the end of the second quarter, up 22 percent from the first quarter and nearly three times the NPAs recorded one year earlier.

“Washington Mutual Inc. is kind of like that milk in the refrigerator that’s a couple of days past its expiration date,” wrote David Weidner, editor at MarketWatch.  “It may be fine or have gone past the point of no return. Either way, it’s not long before it will be gone.”

Disclosure: The author held no relevant positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

Editor’s note: Send comments and questions about this story to kelly.curran@housingwire.com.