Things like this (via The Crypt) can’t be helpful for investor confidence, surely?
Sept. 27 — Sen. Robert Bennett (R-Utah), a key member of the Senate Banking Committee, warned Saturday that another major US bank was ‘teetering’ on the edge of failure and would go under if the bailout deal doesn’t come through soon.
Bennett would not name the bank, perhaps learning the lesson from a situation last month when Sen. Charles Schumer (D-NY), warned that California-based IndyMac could not cover its deposits, and there was a run on that bank by customers.
Bennett was essentially trying to warn the congressional holdouts on the bailout legislation that the situation was so dire that more U.S. banks would fail as soon as Monday or Tuesday, and he seemed to have knowledge, as a member of the Banking Committee, of another major financial institution in trouble.
‘What will they say come Monday if another major bank fails - I will not use the name,’ Bennett said. ‘There’s another major bank teetering on the edge.’
This is the kind of thing that starts bank runs - and indiscriminate ones at that.
A bank run is one of the things that pushed WaMu into the arms of JPMorgan last week. Customers withdrew about $16.7bn from WaMu between Sept 15 and Sept 25, according to the Office of Thrift Supervision.
The majority of those withdrawals were likely customers with retail accounts over $100,000 (the threshold for FDIC protection). If the same were to happen to Wachovia (or banks in general, see the receipt at left found on Wall Street by the Consumerist), it would be a rather big problem for the banking system as a whole, as Dealbook wrote last week.
We’re not certain which company the Senator is referring to here, but note that Wachovia is the US bank that has perhaps been struggling the most since WaMu’s collapse. It’s also one of the banks that stands to benefit most from the Hanke Panke plan to buy up toxic assets.
Wachovia has about $122bn of the most toxic of assets - option ARMS. Which, in addition to making you wonder just how far Paulson’s $700bn will really go, allow borrowers to skip part of their payment and add that sum to their principal. Wachovia has said it expects to lose about 12 per cent of that portfolio. Fitch analysts reckon default rates could be as much as 45 per cent.
Of course, if you’re able to buy Wachovia without the option ARMS and at a distressed price, it’s not a bad buy. The latest on Monday morning is that Wells Fargo and possibly Citigroup are eyeing the bank. The deal hinges on congressional approval of the Emergency Economic Stabilization Act, as above. Hence, no firm offer yet, just lots of uncertainty, as below.
