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.
Wachovia has a far greater range of businesses than Washington Mutual, including commercial and corporate banking, and large brokerage and asset management arms. In a statement issued late Friday it said, "We are aggressively addressing our challenges and are working to strategically strengthen and manage capital and liquidity in this challenging environment."
Part of what pushed WaMu over the edge, federal officials said Thursday, was a run on deposits. Nervous customers pulled $16.5 billion out of the bank in the last two weeks, even though FDIC insurance covers bank depositors up to $100,000 per account and can cover much greater sums, depending on how accounts are structured.
Whether Wachovia could avoid a similar fate remained to be seen.
At a Wachovia branch in Inglewood on Friday, Maritza Canales, 33, came to make a deposit but said she planned to withdraw all $7,000 next week from the accounts she shares with her husband.
"I don't like this at all," said Canales, a nurse. "We'll have to look at the different banks, but I sometimes feel like putting all my money in a mattress. I don't want any problems -- I just want my money to be safe."
Depositors at WaMu, shaken by Thursday's sudden developments, flocked to branches Friday to check on their funds.
Mike Singer of West Hollywood moved $20,000 into a Bank of America certificate of deposit to be sure the remaining $180,000 he and his wife held in Washington Mutual accounts would not exceed the $100,000-per-depositor insurance limit.
As an extra precaution, he added two children as beneficiaries to the accounts.
"It's better for me to divide and conquer," said Singer, 66, a contractor. "There's nothing to worry about -- after all, if America really goes down after all of this, then I won't need the money anyway."
Ervin Katz of West Hollywood, who was second in a short line waiting for Washington Mutual's Park La Brea branch on Third Street to open, said he had $1,000 in a checking account and withdrew $800 of it.
"I'm no expert in economics," he said, "but for sure I was worried. The bank has been tight-lipped about this whole thing."
But most customers seemed reassured as they conducted their business Friday, saying they expected a smooth transition to JPMorgan Chase.
Peter Rosi, 87, a retired community college professor making a deposit at the Laguna Niguel branch, said, "It's fully insured by the FDIC." He said he was more worried about the proposed bailout of the financial system, calling it "corporate socialism." But he added: "It has to be done to keep the credit flowing."