WaMu shares reverse course

WASHINGTON – Shares of Washington Mutual Inc. staged a late rally Thursday, recouping some of this week’s steep losses as investors pumped money back into the banking sector despite ongoing concerns.

The stock jumped 51 cents, or 22 percent, to end the day at $2.83, after earlier falling as much as 25 percent to $1.75. Shares were down in after-hours trading, dropping 11 cents, or 3.9 percent, to $2.72.

The Seattle-based company’s stock was down nearly 46 percent for the week before staging its turnaround Thursday.

The broader market made a stunning comeback late in the day, as investors snapped up some of the financial sector’s stronger players. JPMorgan Chase & Co. rose $2.25, or 5.7 percent, to close at $41.65, after falling as low as $37.92 earlier in the day. Bank of America Corp., meanwhile, rose 66 cents, or 2 percent, to $33.06.

Wall Street’s edginess over the fate of major financial firms was fanned by Lehman Brothers Holdings Inc.’s plans announced Wednesday to sell a majority stake in its investment management unit, spin off its commercial real estate assets and slash its dividend. The nation’s fourth-largest investment bank also said it lost $3.9 billion during its fiscal third quarter.

The company, like many others on Wall Street, has suffered from bad bets on mortgage securities and other risky assets and has seen its stock price drop about 90 percent this year.

WaMu, likewise, has seen its market value wither as it battled rising mortgage delinquencies and defaults. Its shares have fallen more than 90 percent since early July of last year, right before the rapid erosion in the credit markets began.

Federal banking regulators are closely watching the thrift’s condition.

“We’re aware of it and we’re monitoring it,” said William Ruberry, a spokesman for the Office of Thrift Supervision, the Treasury Department agency that is WaMu’s primary regulator.

With losses in its mortgage portfolio expected to peak at $19 billion, the bank could be Wall Street’s next casualty, some analysts believe.

“The question becomes can it survive if it has billions and billions of dollars left to write down on those loans?” Ladenburg Thalmann analyst Richard Bove said. “What’s going to keep it in business, what is going to keep it alive?”

“WaMu made mistakes in loan originations, to be sure, but it also had bad luck in that the bulk of its loans are in California,” which has suffered some of the steepest declines in home prices and largest number of foreclosures, said Stuart Feldstein, president of SMR Research, which provides research on the lending industry.

He noted that WaMu expanded its business in the late 1990s by buying two of the largest thrifts in California, Home Savings of America and its rival Great Western Bank, “in a mad acquisition spree by ex-CEO (Kerry) Killinger.”

“It was an opportunity for him to grow quickly, but in retrospect – and hindsight is easy – they should have had a little more geographic dispersion,” Feldstein said. “He had to sit back and cross his fingers that nothing ever went bad in California.”

One thing working in WaMu’s favor is its valuable deposit base. Bove suspects management is “scrambling to find a buyer.”