Washington Mutual pressured as economic storm intensifies

NEW YORK (AFP) — US officials are fiercely putting out a series of economic fires with all eyes now focused on the fate of Washington Mutual after AIG became the latest company to be thrown a lifeline.

According to the New York Post, US banking regulators are actively searching for a candidate to take over the Seattle, Washington-based bank amid fears it could be the next to be felled by the economic maelstrom.

The New York Times said Wednesday that the bank had hired Goldman Sachs to discuss a possible sale, with possible bidders including institutions such as Wells Fargo, JPMorgan Chase and HSBC.

Washington Mutual, the country's largest savings and loan, is now seen as one of the firms the most exposed to the current mortgage crisis sweeping the ailing housing sector.

Known as WaMu, it has seen its stocks savaged in a bloodbath on US markets in recent weeks, losing some 85 percent of their value this year. Shares plunged again Wednesday on the stock market losing some 13.36 percent to end the day at 2.01 dollars.

The west coast bank's total share value is now set at less than four billion dollars.

The Wall Street Journal said Wells Fargo and Citigroup had shown an initial interest. But if no buyer emerges, the government could be forced to place the bank into conservatorship, the New York Times said.

"The solution is an assisted transaction whereby Washington Mutual is sold to a second party and the FDIC covers all losses above a specified level," said Richard Bove, from Ladenburg Thalmann.

Bove was referring to the Federal Deposit Insurance Corporation (FDIC) which insures deposits in banks up to 100,000 dollars.

Even as the housing market was spiraling into a crisis, Washington Mutual continued to increase its reserves for bad debt, which hiked from 1.53 billion dollars in the fourth quarter of 2007 to 10.3 billion nine months later.

Having written off some 5.9 billion dollars in the second quarter due to the mortgage crisis, WaMu warned of a further depreciation of 4.5 billion dollars in the third quarter.

Anxious clients have already begun to show their concern.

The Financial Times reported Tuesday that deposits have dropped by five billion dollars since June -- a sign of panic which could see a rush on the bank as account holders line up to withdraw their money.

Bove said Washington Mutual has a huge customer base, with the average account holding some 5,200 dollars.

Like Lehman Brothers, which filed for bankruptcy on Monday, or American International Group (AIG), handed an 85-billion dollar bailout by the Fed, WaMu is caught in "a vicious circle," said Marc Pado from Cantor Fitzgerald.

The same causes are triggering the same results: a fall in share value reduces the value of the bank's assets and thus cuts the value of its collateral when it seeks fresh cash.

"The other side of the equation is, who has the liquidity to buy WaMu when everything is such in question?" said Pado.

On Monday, when all eyes were still on AIG as it struggled to stay afloat, ratings agency Standard & Poor's lowered its debt rating for the major West Coast bank to 'BB-' from 'BBB-.'

That came a week after Moody's downgraded its debt to non-investment or "junk" status.

To add to its woes, Washington Mutual chief executive Kerry Killinger was forced to step down last week after 18 years at the helm.

Given all these factors, it will be "difficult to find someone to step up to buy WaMu," warned Pado.

U.S. economic worries derailing McCain's 'Straight Talk Express' campaign

WASHINGTON — John McCain's once-buoyant campaign appears to have stalled now that Americans have big worries about the shaky U.S. economy.

On almost every front, it's been a bad few days for the Republican presidential nominee, whose heady boost in the polls after his surprise pick of Alaska Gov. Sarah Palin as his running mate appears to be levelling off.

McCain was believed to have enjoyed a five-point lead over Democratic rival Barack Obama just a few days ago. Now, some polls are suggesting Obama may be back in the lead. A Gallup survey released Wednesday has Obama at 47-45 over McCain.

McCain's image troubles grew worse Wednesday over remarks he made over a federal bailout for insurance giant American International Group.

The Federal Reserve pumped $85 billion into AIG just a day after McCain said he was opposed to such a costly helping hand.

"I didn't want to do that," a tense-looking McCain told ABC News on Wednesday, saying the government was forced into the bailout. "And I don't think anybody I know wanted to do that."

"But there are literally millions of people whose retirement, whose investment, whose insurance were at risk here. They were going to have their lives destroyed because of the greed and excess and corruption."

His campaign couldn't offer any examples of corruption at AIG.

Just a day earlier, McCain was adamant that no federal help should be forthcoming for AIG, noting that the Fed had refused to bail out Lehman Brothers, the 158-year-old financial institution that sought bankruptcy protection Monday.

"No, I do not believe that the American taxpayer should be on the hook for AIG, and I'm glad that Secretary (Henry) Paulson has apparently taken the same line," McCain had said in an interview with NBC.

"They're on their own. We cannot have the taxpayers bail out AIG or anybody else. This is something that we're going to have to work through."

McCain, who's been selling himself as a straight-talking maverick on the campaign trail, is on the hot seat on another economic front - his sudden insistence that the financial industry is in desperate need of regulation.

The Arizona senator's new stance comes after voting consistently for years against regulation, just like the vast majority of his Republican colleagues.

"McCain has developed a reputation over the years as someone who was very disinclined to want to regulate, and in that sense he was not a maverick at all but in fact a very mainstream Republican," Paul Beck, political science professor at Ohio State University, said Wednesday.

"And now he's caught in a situation were there was insufficient regulation and the economy is in trouble. It puts him in a very bad position because there's a real credibility problem here."

"For someone who's really tried to be a straight talker, he's scrambling and the positions he's taken in the past are coming back to haunt him."

McCain has been roundly attacked not just for his flip-flops on economic issues but for statements branded as misleading - on issues such as Obama's tax proposals, his aim to teach young children about avoiding sexual predators, and Palin's handling of public finances in Alaska.

Even Republican mastermind Karl Rove had a gentle rebuke for the McCain campaign, telling Fox News it "has gone one step too far, attributing to Obama things that are, you know, beyond the 100 per cent truth test."

He said the Obama campaign, however, was doing the same thing.

The McCain campaign seems to realize the economy is on everyone's mind.

In two new television ads released Wednesday, McCain asserted that he is the right leader to keep Americans' savings safe.

"I'll meet this financial crisis head on," he says in one ad. "Reform Wall Street. New rules for fairness and honesty. I won't tolerate a system that puts you and your family at risk. Your savings, your jobs - I'll keep them safe."

But Beck says that as long as the economy continues to falter, Obama has the upper hand. Beck predicts that public opinion polls will soon show another dramatic turnaround in a march to the White House that has become a horse race.

"The polls were most certainly be affected - it's already starting to happen," Beck said.

"We are through the Palin surge period and things are going to settle down a bit. She will still draw strong support from the Republican base, and she's been very successful on that front, but swing voters are beginning to have second thoughts about Palin."

"The bloom is off the rose, and McCain will have to deal with that reality now and the fallout from events that he cannot control - like economic bad news."