WaMu Wobbles But Still Neck and Neck with Lehman in the Dead Banks Walk-a-thon

Washington Mutual continues to get hammered as doubts about its solvency increase, and its core businesses decline almost as fast as its capital structure.

However, Lehman's announcement this morning was... a non-event at best, and a pathetic play for time at worst. The only real news was the potential sale of some British real estate to Black Rock for an undisclosed discount and the slashing of the dividend. Oh yeah, and Dick Fuld is still firmly in charge.

As we could not find any balance sheet associated with this release, we are still wondering what's really there behind the name and the facade. And even more so, what still lurks off balance sheet in uncharted waters.

The problem is not liquidity even at cheap levels. The problem is that the business model that supported these financial mutants has changed. They are standing their holding their buggy whips waiting for the horses to come back.

Time to adjust to the global economy guys and the new faces moving in. You no longer have the exclusive turf for Mulberry Street.

So, we still see Lehman as the leader in the dead-man-walking marathon, but Washington Mutual is not far behind, and possible pulling even. National City is within sight.

The finish line is a cliff.

WaMu's CDS spreads surge to record high
by Dena Aubin
Wed Sep 10, 2008 11:22am EDT

NEW YORK, Sept 10 (Reuters) - The cost of protecting Washington Mutual's debt with credit default swaps surged to a record high on Wednesday as the lender's shares plunged more than 25 percent.

Five-year credit default swaps on Washington Mutual traded at 40 percent upfront, plus 500 basis points annually, up from 32 percent upfront plus 500 basis points a year on Tuesday, according to data from Phoenix Partners Group. That means it now costs $4 million on an upfront basis plus $500,000 a year to protect $10 million of debt for five years.

WaMu May Lose Suitors on Accounting Rule; Stock Plummets 30%
By Jonathan Keehner and Linda Shen
Bloomberg

Sept. 10 (Bloomberg) -- Washington Mutual Inc. Chief Executive Officer Alan Fishman, who sold the last bank he ran, may not be able to repeat the feat because new accounting rules for devalued loans are driving away buyers. (Why can't he just make them go away? Is Ben still adopting unwanted mongrel debt? Jesse)

At least three potential acquirers ended talks this year to buy either Seattle-based WaMu or Cleveland's National City Corp., according to two bankers involved in the talks. (With that strumpet from KDB? lol - Jesse) A sticking point, they say: a rule change that will force acquirers to compute a target's assets at market prices instead of deriving values from measures including the purchase price. (How inconvenient. How can one cobble deals together without a veneer of fraud? - Jesse)

The Financial Accounting Standards Board's change, effective in December, may delay consolidation in an industry saddled with more than $500 billion in writedowns and credit losses. WaMu shares plunged as much as 30 percent to a 17-year low after slumping 20 percent yesterday. The cost of protecting the lender against default soared to a record. (The rule change is not the problem. The problem is these jokers won't take the hit and the writedowns. They are all waiting to be bailed out based on the Bear Stearns model. What else would you expect? - Jesse)

``The new rule will curtail M&A by making it too expensive,'' said Robert Willens, a former Lehman Brothers Holdings Inc. accounting analyst and executive who teaches at Columbia Business School. ``With loans fetching their greatest discounts since the Great Depression, it sharply reduces the value of a target's assets. That will force an acquirer to raise additional capital in this very difficult environment.'' (See what we mean? These guys don't want any part of free market capitalism. They just want to make deals and lay off the risk on the public or the tourists in the global financial syste, the SWFs - Jesse)

Loan prices may drop by about 30 percent from their valuation at maturity, said Willens, who also runs a tax consulting firm in New York.

Brad Russell, a spokesman for Washington Mutual, declined to comment on potential acquirers and the FASB rule, as did Kelly Wagner Amen at National City.

Goldcorp Looking at Junior Miners Acquisitions, Gold to 1500

Unless the economy completely collapses their stategy makes perfect ssense, since there is blood running in the streets for many of the juniors, and the selling is far overdone as the hedge funds unwind positions. If the stock markets suffer a further significant decline he's about a six months to a year early.

At this time we own no miners (and no long equity positions) and only light trading positions in the metals themselves to which we are slowly adding. We are looking at the miners, but more towards the miners who should be among the first to recover after the equity markets clear.


Goldcorp Well Placed to Exploit Mining-Share Collapse, CEO Says
By Stewart Bailey
Bloomberg
September 10, 2008 09:25 EDT

Sept. 10 (Bloomberg) -- Goldcorp Inc., the world's second- largest gold miner by market value, said it has $1.2 billion in cash and no debt, putting it in a good position to make acquisitions amid a collapse in mining stocks.

The Vancouver-based company will look mainly in Mexico and Canada, where its largest operations are located, Chief Executive Officer Kevin McArthur said yesterday in an interview at the Denver Gold Forum. At the same time, Goldcorp will push ahead, exploring for new sources of ore near its existing mines and developing new deposits, he said.

McArthur believes the forced sale of assets by hedge funds is the cause of bullion's plunge by almost 25 percent since touching a record in March. For smaller miners, the effect of lower metal prices has been exacerbated by the continuing credit crisis, which has constrained their ability to get the loans they need to develop projects. Shares have plummeted.

``When sentiment is bad, and if you believe in the premise that we're in a long-term bull market, this is good time to knock on a few doors and take advantage,'' he said. ``We're looking at another couple of possibilities here and there that look attractive for us.''

`Fire Sale'

McArthur predicts gold prices, depressed by a ``fire sale'' of assets by hedge funds, could double to $1,500 an ounce in 18 months. In making acquisitions, he will face competition from rivals Kinross Gold Corp., Randgold Resources Ltd. and Newmont Mining Corp., all of which believe the crash in mining stocks has created opportunities for buying distressed rivals...

``We saw this liquidity crisis coming, which is why we cashed up,'' McArthur said. ``We're very pleased with the situation right now. We see juniors lacking capital and expertise and what do we have? Capital and expertise. It's a good environment for us to grow our business.''

Acquisitions

McArthur agreed in July to pay C$1.5 billion for Gold Eagle Mines Ltd. to add a deposit of the precious metal near its Red Lake mine in Canada. While acquisitions are likely to be in Canada and Mexico, the company will also consider Brazil, Argentina and Chile, he said.

For targets close to its existing mines, where infrastructure and staff can be shared, the company will consider buying smaller deposits that contain reserves of ``hundreds of thousands of ounces.'' In territories where Goldcorp has no presence, acquisitions would have to ``move the needle'' by adding at least 3 million to 5 million ounces, McArthur said.

Goldcorp's production this year is expected to be 2.3 million to 2.4 million ounces at a cash cost of less than $300 an ounce, the company said in July.

The US Economy is Beyond Simple Repair

Currency trader and banker Chuck Butler publishes a daily foreign exchange newsletter called The Daily Pfennig. We read it via email every morning for which you can subscribe at no charge. Chuck knows his stuff and is a straight shooter.

Today Chuck made an observation that we need to keep in mind.

"The Government's decision to bail out Fannie and Freddie and place them into
conservatorship may shore up the mortgage meltdown in the short term... But to
me, this is just another in the line of things the Fed and Treasury have done in
an attempt to bring calm to the financial markets... (Bear Stearns, mortgage
bill, money supply, low interest rates, and dollar intervention, stimulus
checks, and more!) But, when you step back and look at all this, none of it, and
I mean NONE of it had done anything to alleviate the pressures on rising home
inventories, falling home prices, upside down mortgages, unemployment, the
deteriorization of the financial markets (see the dead man walking list of banks
that are in deep dookie) and that doesn't just mean banks... The major
Brokerages are standing on the street corners with their hands out, begging for
any sovereign wealth fund that might give them a capital infusion."

The basis of the US economy is broken. The bubbles and busts are not incidental, but represent the essence of what it is. Even if Ben and Hank can patch this up by printing money in the short term, it does not fix the problem that the US is not a going concern, does not have a positive cash flow, is relying on credit lines and new debt that cannot be repaid.

The system will stop and fail when we default on the debt or can no longer service it by paying the interest.

Based on our calculations we are already paying the interest with new debt. That is one step from default and insolvency.

The Fed and Treasury are trying to patch the ship of state and keep it afloat. But the problem is that we are in shallow waters grinding through shoals. We need to change course.

SP Weekly Chart Updated - Target to 1180 and Below on Track

The updated chart shows the formation is still working. Depending on where we place any additional necklines the ultimate target can be significantly lower, on the order of 700 or less barring an exogenous event such as war or a more significant monetary inflation.



Original Chart Posted on 6 June 2008