Saturday, September 6, 2008

The next bank "call option"


Washington Mutual (WM 4.27) is the play for those who got canned on Freddie and Fannie. Everyone loves a cheap way to play upside. The Treasury plan with the GSE's gives the green light for speculators on WaMu.

Now it remains to be seen what the equity of FRE and FNM will be worth. But what will speculators play with next? If you now have mortgage financing through the GSE's, then the play for an upside on housing is WM.

Here's a play you don't have to overthink. Who invested in WaMu anyway? Wasn't it Texas Pacific Group (TPG)?

The GSE bailout benefited the $900 billion gorilla, PIMCO, the largest US buyer of FRE and FNM paper. TPG, who invested in WaMu is the $50 billion gorilla.

Back in May both Pimco's Bill Gross and TPG's David Bonderman were honored at the Asia Society California dinner. Does anybody think these guys are not politically connected? Does anybody think they haven't curried favored with the deal makers?

Do you think WaMu isn't getting a lifeline with the GSE deal? TPG invested in WaMu at $8.75, and if WaMu raises more than $500 million at prices less than $8.75, then TPG gets cut in on the difference, just like Temasek got cut in when Merrill had it's last offering.

But this time, the shorts will be too bloodied to lay out any more stock, because now the Treasury bailout of the GSE's will allow Wall Street to look past the current problems. The GSE bailout will put further pressure on those short the monoline insurers. How much more pain can these guys take?

And how many Wall Street copycats thought they were clever shorting WM because of the "death spiral" financing that TPG did? They probably thought they understood it infinitely more than the retail investor buying WM.

But now WM got a lifeline. You need some of these to work, just to keep Mom and Pop in the game.

And now Wall Street speculators will have a new stock to push!

1 comment:

Anonymous said...

WaMu is Toast in their current structure. With a 5% rate offer on CD's to raise cash and an unknown run rate on bad loans and bad credit cards; without a turn around in the housing market they will need to start to sell off branch locations to avoid being put under supervision. Plus their customer service is bad and their advertising is just plain weird. Fire the President, take the hit and sell off half of their locations and they might make it as much smaller regional bank.