Jittery depositors found business being conducted as usual at Washington Mutual Bank on Friday, a day after it was seized by the government and sold to JPMorgan Chase & Co. But investors, fearing more sudden consolidations and failures, pounded the stocks of other banks that specialized in the type of risky mortgages that brought down WaMu.
Shares of the parent companies of Downey Savings and First Federal Bank, two Southern California savings and loans, fell 48% and 45%, respectively. Wachovia Corp., the nation's fourth-largest bank, saw its stock drop 27%. But shares of JPMorgan, Bank of America and Wells Fargo -- which are thought to be less exposed to troubled mortgages -- rose.
Analysts said that Wachovia was under major stress and that a sale of the Charlotte, N.C.-based bank made sense because, like Washington Mutual, it was too big to be easily liquidated by the Federal Deposit Insurance Corp.
But the decaying portfolio of adjustable-rate home loans on Wachovia's books, along with uncertainty surrounding the government's $700-billion plan to buy up troubled mortgage assets, would give prospective buyers pause, the analysts added.
"Any company that does a transaction today greatly risks overpaying," said analyst Todd Hagerman of Credit Suisse. "The government seems to be changing the rules on an hourly basis. That breeds uncertainty in the marketplace."
The Wall Street Journal and New York Times, citing unnamed sources, reported that Wachovia was in preliminary takeover talks with three banks: Wells Fargo & Co., Citigroup Inc. and Spain's Banco Santander. The banks identified as suitors declined to comment.
Hagerman said a deal between Wells Fargo, a giant in the West, and Wachovia, which is strong in the East, "has long been rumored in the marketplace." The banks are "a very good fit culturally and just in terms of business mix," he said.
RBC Capital Markets analyst Joe Morford said he believed Wells Fargo, despite its history of acquiring only smaller banks west of the Mississippi, would consider buying Wachovia. "Longer term, strategically, there could be some real value to that combination."
But he said the deal probably would be attractive only if regulators first seized the bank as they did Washington Mutual, relieving a buyer of obligations to Wachovia's stockholders and bondholders. Wells also might want to buy only deposits and not shoulder the soured loans, Morford said.
