Major investors are supporting TD Bank’s (TD) potential bis for Washington Mutual.
TD has been using the unusually strong Canadian dollar to snap up banks assets in the US, the most recent the $8.5-billion acquisition of New Jersey-based Commerce Bancorp.
According to shareholders “The phenomenal pace at which U.S. banks were being pushed to the verge of bankruptcy was creating a “once in a lifetime opportunity” for Canadian buyers.
The main sticking point for any potential buyer is the $300B in mortgages WaMu holds and what portion of them can be sold to the Treasury and at what terms.
WaMu is interesting because it is essentially trading as though it is destined to go under. It is pretty obvious that after those in Congress finish spewing populist venom at Wall St., something is going to get done. That being said, we can assume a large part of the problem with WaMu will be alleviated. When that happens, the stock now trades far below the value of the bank.
Now, the problem here is whether or not the gov’t requires equity interest in the companies it buys securities from. Based on Buffet and Berkshire’s (BRK.A) investment in Goldman Sachs (GS) today, I think Warren feels this option is not likely.
If WaMu can unload these, the stock ought to rocket. If they can only unload a small portion, then they may need to sell branches to raise additional cash. In that case, depending on the details, the stock may be overpriced where it is and if it is forced lower, may not recover for a long time.
If they cannot sell them, then they are forced into a fire sale and all bet are off as to a value, if any, for the current equity.
Which option? My guess is a hybrid of option 1 and 2. With that, I would say that there lies the potential for substantial upside to shares, with the risk being annihilation. It is Vegas time for shareholders. If you like to gamble, keep it small.
Disclosure (“none” means no position):Long GS, none
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3 replies on “Heavy TD Bank Interest in Washington Mutual”
Where do you get $300B in mortgages? They have $310B in assets (and if they had all mortgages, they would be done for already).
it is their exposure through the CDO’s
The preferred stock is a safer bet than WaMu common and still offers lots of upside if WaMu survives.