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Thursday, July 24, 2008


the run on washington mutual

via calculated risk and bloomberg:

Washington Mutual Inc. tumbled more than 20 percent for a second day as Gimme Credit LLC said unsecured creditors were ``pulling funds'' from the biggest U.S. savings and loan.

Gimme Credit analyst Kathleen Shanley cited the decline in federal funds purchased and commercial paper to $75 million from $2 billion at year-end, which Washington Mutual reported this week in its second-quarter results. Securities sold under agreements to repurchase dropped to $214 million from $4.1 billion at the end of 2007, she wrote.

Washington Mutual, known as WaMu, reported a $3.3 billion second-quarter loss on July 23. Rising delinquencies forced the Seattle-based company to boost provisions for bad loans. While WaMu said it has enough capital after raising more than $7 billion earlier this year, Shanley said liquidity remains a concern.

``We won't use the phrase `run on the bank,' but we would be remiss if we did not observe that many creditors have quietly been pulling funds,'' wrote Shanley, based in Chicago. Their actions are ``presenting an increasing funding challenge,'' she wrote. Gimme Credit is an independent research firm serving corporate bond investors.

long time coming. paul jackson of housing wire notes that there are skeptics of the analysis, but it caught my eye that jackson mentioned:

Looking at deposit activity in the second quarter, it’s worth noting that WaMu saw total deposits drop $6.13 billion between the end of March and the end of June to $181.9 billion in total, with $3.4 billion of that total drop coming out of retail deposits. Total deposits are roughly 10 percent below year-ago levels, as well; and while overall deposits are falling, brokered deposits are rising. WaMu reported $19.3 billion in consumer brokered deposits at the end of Q2, up $1.5 billion from one quarter earlier.

this is very similar to what was transpiring at indymac.

Uninsured deposits began to run off in mid-2007, long before Senator Schumer's letter. In fact, the bank actively replaced slight declines in FHLB advances and a drop in uninsured deposits with insured deposits, and particularly with fully insured brokered deposits under $100K.

and that's hardly a surprise, given that some minority of depositors have had their head in the game and are proactively protecting their savings. but in this environment, on the heels of indymac, wamu is dead as a doornail. press reports like this can quickly end up being the kiss of death. i wouldn't be surprised if depositors just now awakening to the danger were queueing in their branches right now.

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