Sunday, September 14, 2008

$24 billion needed for WaMu?

US taxpayers could be on the hook for as much as $24 billion to rescue embattled Washington Mutual, the country's No. 1 savings and loan, a top banking analyst is warning.

The jaw-dropping tab would come in the form of federal mortgage loss guarantees needed to coax a buyer into purchasing WaMu, according to Landeburg Thalmann's Dick Bove, whose view on the need for a federal backstop is shared by an official with the Office of Thrift Supervision, WaMu's regulator.

Bove, in an exclusive interview with The Post, said the crushing $32.5 billion in mortgage defaults he is estimating WaMu will face over the next five quarters will force the federal government to guarantee as much as $24 billion in losses on defaulted option-ARM and subprime mortgages and home-equity lines of credit, or HELOCs.

After crunching numbers on WaMu's balance sheet, Bove said a sale price for the Seattle-based bank could be in the neighborhood of $2 a share. The possibility that WaMu will be sold, he said, increased recently.

"Killinger was fighting to shrink the balance sheet and keep the bank independent," Bove told The Post. "By adding Fishman, who's known as a guy who can get a bank ready for a sale, they removed an important obstacle."

Bove was referring to the ouster last week of Kerry Killinger, the longtime WaMu CEO, who had steadfastly balked at selling the thrift. Alan Fishman, the new CEO, was in charge of Independence Savings Bank when it was sold to Sovereign in 2006.

WaMu shares have fallen 80 percent this year under the weight of a balance sheet that held:

* $52.9 billion in Option ARM mortgages.

* $60.4 billion in HELOC loans.

* $16.1 billion in subprime mortgages.

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