Published September 18, 2008

US govt reaches out to banks to organise WaMu buyout

Morgan Stanley weighing merger option, says report

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(NEW YORK) The US government has been reaching out to large banks in an effort to organise a buyout of the beleaguered Washington Mutual Inc (WaMu), according to a person briefed on the talks between regulators and banks.

The obstacle, however, is that 'no one knows what's in their books', the person said, speaking on condition of anonymity because of the sensitivity of the matter. There could be, he said, 'a minimum amount of value there'.

A New York Post report yesterday citing unnamed sources said regulators have reached out to Wells Fargo & Co, JPMorgan Chase & Co and HSBC Holdings plc, among other institutions. The Post noted that no discussions of a deal between any of those banks and WaMu were underway.

Shares of WaMu have plummeted in recent weeks amid continued concerns about mounting losses in the bank's lending portfolios.

WaMu shares have fallen 49 per cent over the past month and are off 83 per cent for the entire year.

WaMu, the biggest US savings and loan, is favoured to be the next financial institution to fall, according to odds offered by Paddy Power plc, Ireland's largest bookmaker.



The Dublin-based bookmaker yesterday cut its odds on WaMu's collapse, which it defines as 75 per cent one-day fall in its share price, to 1-5, meaning a five euro bet would return one euro. American International Group (AIG), bailed out by the US government late on Tuesday, was the previous favourite.

'We were getting ready to pay out on AIG when the rescue package was thrown into the mix,' Paddy Power said yesterday. 'The odds suggest that Washington Mutual mightn't be so lucky, but they've been wrong before.'

Standard & Poor's cut WaMu's credit rating to junk on Sept 17, citing its exposure to the deteriorating US housing market.

Meanwhile, shares in Morgan Stanley plunged up to 42 per cent and shares in Goldman Sachs Group Inc were down more than 20 per cent in late morning trading yesterday on lingering worries about their ability to survive, and a day after both reported better-than-forecast results.

Morgan Stanley is weighing whether it should remain independent or merge with a bank, given the recent turbulence in the company's share price, broadcaster CNBC reported yesterday.

Morgan officials were not in merger talks as at late on Tuesday, CNBC said, citing unnamed people close to the matter.

'But senior people at Morgan concede that further zig-zags in the company's stock price could and possibly will force the company to change course and seek a merger partner, probably a well-capitalised bank,' CNBC reported on its website.

Morgan said on Tuesday its core businesses continue to generate solid profits, as the No. 2 US investment bank hurried to convince investors that it is withstanding the financial turmoil that has dramatically changed the face of Wall Street over the past few days.

Although its fiscal third-quarter profit slipped 7 per cent, the result surpassed Wall Street's expectations. Morgan reported strong performance in its core prime brokerage, commodities and equities businesses.

The New York-based investment bank - which reported results a day earlier than scheduled - earned US$1.43 billion, or US$1.32 per share, compared with US$1.54 billion, or US$1.44 per share in the year-ago period. Revenue rose to US$8.05 billion from US$7.96 billion.

'Despite unprecedented market conditions, Morgan Stanley's core client franchise achieved solid revenue growth, profitability and return-on-equity this quarter,' said chairman and CEO John Mack. -- AP, Bloomberg, Reuters