WaMu Plan Might Not Go Far Enough, Analysts Say
Washington Mutual shares are expected to fall sharply Tuesday after the U.S. savings and loan unveiled plans on Monday to strengthen its balance sheet and protect itself from continued deterioration in the credit markets.
One reason for the decline in Washington Mutual's stock price is investor concerns that the steps - which include a reduction in the company's dividend, more than 3,000 job cust and a $2.5 billion capital infusion - might not be enough.
Shares of Washington Mutual tumbled in premarket trading, falling $1.96, or 9.9 percent, to $17.92. Shares have traded between $16.75 and $46.38 during the past year.
In a research note Tuesday, Friedman Billings Ramsey analyst Paul Miller questioned whether that $2.5 billion in convertible preferred stock that Washington Mutual is issuing wil be enough to help cover mounting losses in the bank's lending portfolios.
"We believe the current capital raise will be insufficient to get through the next few quarters, and we expect further capital raises in coming months," Miller said.
Miller cut his price target for Washington Mutual to $12 from $14 and now expects the bank to post losses of $2 per share in the fourth quarter and $1 per share in 2008.
Under its plan, Washington Mutual's quarterly dividend will be reduced to 15 cents per share from 56 cents per share. As much as $1.6 billion will be set aside to cover loan losses in the fourth quarter.
Punk Ziegel & Co. analyst Richard Bove said Washington Mutual's current struggles make it a candidate for takeover, but the list of potential bidders is likely limited by the current market. JPMorgan Chase is likely the only bank in a realistic position to acquire another large national bank, Bove wrote in a research note.
Bove cut his price target on the bank to $16 from $18, while maintaining a "Market Perform" rating.