Before the Bell Tolls: Washington Mutual Falls

Investors remain wary on the stability of Washington Mutual even after the bank issued statements reassuring the public about the condition of its capital levels.

Investors Getting Wary

As more investors become more apprehensive and less convinced of Washington Mutual Inc.’s reassurances, its shares of stocks tumbled sharply by almost 5 percent on the pre market trading floors.  Specifically, investors are increasingly getting suspicious on the capability of Washington Mutual to withstand the grinding banking sector crisis due to lack of necessary capital.

On late Thursday, Washington Mutual Inc. issued a statement announcing that the financial institution has enough liquidity and capital to support its general operating expenses while striving to regain its footing to recover and bring back the bank’s profitability margins.  The statement jolted the stocks of Washington Mutual but gains have been short lived.

In Friday’s pre market trading sessions, the gains recorded from the initial jolt quickly went up in smoke as positive advances evaporated pretty fast.  Washington Mutual’s stocks dropped by 13 cents to post a low $2.70 even before the bell has been sounded.  Thursday’s close saw the stock of Washington Mutual at $2.83.  This year, the stocks of the beleaguered bank went down by as much as 80 percent.

Appeal to Investors

On Thursday, Washington Mutual Inc., a Seattle-based banking giant, issued an appeal to investors after suffering terrible losses at the trading floors last week.  The bank made a pre release of its financial metrics for the third quarter.  The release was a full three weeks ahead of the actual assessment period.  

In its appeal, Washington Mutual stressed that the bank has enough capital resources to finance its long term operations.  Surprisingly, Washington Mutual officials announced a multi billion dollar write off on bad debts and bad mortgage loans.

Washington Mutual Inc. has been hit by risky investments on mortgage securities and other risky assets.  The fate of Washington Mutual is similar to those experienced by other financial institutions that tumbled on risky investments.

Analysts’ View

Frederick Cannon, an analyst from Keefe, Bruyette & Woods, said that the announcement made by Washington Mutual made him feel modestly better than usual.  Cannon said that the financial company generated better results, although very slightly, than his projections.  

Brian Foran, another analyst this time from the Goldman Sachs has upgraded the stocks of Washington Mutual Inc., from being Neutral to the Sell category.  Foran said that Washington Mutual could really have enough capital resources and financing sources.  

He added that the cash reserves of the company could be more than enough to prevent it from selling its shares to raise funds.  Foran analyzed that once Washington Mutual start to oversell its stocks to raise capital, its existing value could certainly be watered down on the capital markets and at the trading floors.