Wednesday, November 28, 2007

More hysterics in WaMu short land

Yesterday it was Meredith Whitney of CIBC and her nonsense saying there was a 100% chance that Citi would cut it's dividend. I neglected to mention Herb Greenberg of CBS MarketWatch and CNBC contributor. Here's what he said:

Wells Fargo just took a $1.4 billion charge on $11.9 billion of home equity exposure. That’s a 12% cumulative loss rate! If you used that as a read across for Washington Mutual’s $59 billion home equity book it would imply a charge of $7 billion!! Total reserves are $1.9 billion.... While it may appear that this is an apples to oranges comparison, Wells is considered a much higher quality home-equity lender. These numbers used by the analyst assume that much of Wamu’s home equity portfolio could be comparable to the $11.9 billion that Wells Fargo identified as its “highest risk” loans.

Now yesterday, WFC traded down to 28.55 in the after-hours when they reported their loss. It closed today at 30.72. Now let's take a look at the facts. Here's WFC's press release:

While the $11.9 billion of loans in this liquidating portfolio constituted only about 3% of Wells Fargo's total loans outstanding as of September 30, 2007, the loans represent the highest risk in the Company's $83.4 billion National Home Equity Group portfolio.

So WFC had a $1.4 billion charge-off out of $83.4 billion of loans, and the loans with the highest risk were segregated. So the charge-off rate is 1.67%. (1.4/83.4) Washington Mutual has a $59 billion home equity portfolio. A 1.67% charge off would be $985 million, ($59 billion x 1.67%) and WM has reserves of $1.9 billion, double the expected charge-off.

But Mr. Greenberg and Ms. Whitney are interested in publicity, ratings, and viewers; in their dictionary hysteria and disinformation is called moxie. You can call it what you want. I'll just call it as I see it. And here's how you can make some money off of it.

Buy Washington Mutual (WM 18.31). There are 63 million shares short, and they are desperate enough to spread false information. This stock was at 36 five weeks ago. Now you want to yell fire in a crowded theatre?

I highlighted the nonsense with Fannie Mae and Freddie Mac. Do you think their agenda is any different with WaMu? If you don't want to buy the stock, pick up some cheap call options.

Before someone decides to buy the company and put the shorts, and their hysterics to bed.


Anonymous said...

CFC was at $20 on the first of Oct. NOW ITS A $9 STOCK!!!

Palmoni said...

CFC should have their bailout announced by Monday. the stock could trade up a couple points on that news. WM now has 73 million shares short. Why do you think they are screaming? WM is done going down. Remember the FED cuts in 8 trading days. And that helps the banks.

Palmoni said...

CFC should be 14 next week