Rotella’s internal blog has been abuzz this week with stories from the field of nervous depositors. Yahoo and the other online boards are counting down the days until WaMu is taken over by the FDIC / OTS. We’ll find out for sure on the July 22nd earnings call just how many deposits have run off since the IndyMac collapse, but taking a step back could WaMu really be going down? Do the numbers add up? Short answer: No. Long answer: Let’s take a look at the evidence.
As of March 31 WaMu had $188B in total deposits with $152B in retail deposits and $46B in FDIC uninsured deposits (from the Thrift Financial Reports - enter in Washington Mutual, look in the “DI” Deposits report at lineitem DI210).
That is a strong position but IndyMac also had decent liquidity on March 31. After all that was over 135 days ago. However earlier this week WM preannounced in a press release that as of June 30th they have $150B in retail deposits and more than $40B in “excess liquidity”.
So deposits clearly hadn’t deteriorated noticeably as of June 30th (and remember Sen. Schumer’s letter that started IndyMac’s downfall was June 26). $40B in excess liquidity and $46B in uninsured deposits sounds decent, ought to be able to cover a minor run on bank (if such a thing exists) but it certainly should cause a little alarm since there’s potential for disaster if things go wrong. But let’s dig a little deeper. With $188B in total deposits and $150B in retail/small business deposits, that leaves $38B in wholesale, escrow and brokered deposits which generally are a) much larger than retail on a per-account basis, b) locked up for longer durations and c) deposited by more cool-headed customers than retail customers. Conservatively assuming that 50% of these non-retail deposits are uninsured ($19B) and are unable/don’t see the need to liquidate in a bankrun, that leaves $27B in uninsured retail deposits with $40B in excess liquidity. Is the heart-rate returning to normal now? That would be a lot closer call than anyone would hope but WaMu would still be solvent even if all $27B in uninsured retail deposits left the bank.
But, Flash, you ask. What about the customers who are insured but withdraw their money anyways? And there’s the rub. Despite fact that all insured IndyMac customers were unimpacted; they had their money available the next business day, their debit cards still work and their deposit interest rates haven’t changed, people would get caught up in a real WaMu deposit panic and yank their money out. Many did with IndyMac though largely only after Sen Schumer released his letter on June 26 and the regular media started beating the IndyMac drum. Honestly, how many times before they collapsed had you read stories like this, and read about IndyMac losing roughly 1% of deposits a day after June 26.
That distinct lack of deposit hysteria in the broad media about WaMu (if WaMu was losing 1% of deposits a day ($1.9B) you can be sure it’d be in every paper every day, and you can be even more sure Wells, Chase and B of A would be running ads encouraging WM customers to jump ship), along with other anecdotes such as the lack of a line at any WaMu store you enter (and it’s not just me), WaMu refusing to accept IndyMac cashiers checks with a reasonable hold-time (8 weeks are you kidding me? Despite being backed by the Federal government?), and WaMu deposit rates roughly 0.5% below the market leaders in the West Coast states would seem to indicate that WaMu is not nearly as hard up for deposits as the blogosphere would have you believe; and accordingly, that the risk of everyday insured depositors fleeing WM is nowhere near as real as the message boards would have you believe.
On the flipside for the case against WaMu IndyMac itself was denying it was about to collapse 10 days before it did, there is a belief that WM is among the weaker banks around, and perception can be reality in financial crises (ask Jimmy Caine at Bear, or anyone in IndyMac’s executive suite). Maybe that’s enough to trump the actual numbers stated above. Only time will tell.
So what do you think? What are odds WaMu is really having a bank run? And for the record while I do work at WaMu, this is not an official blog and I am certainly not a WaMu apologist (read my other posts!!). Feel free to post comments. By virtue of reading my blog you are not only devilishly handsome with a rapier wit, but you clearly posses above average intellect so I can’t wait to hear your thoughts.
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8 responses so far ↓
1 Anonymous // Jul 21, 2008 at 4:04 pm
All Rumors….
2 Free // Jul 23, 2008 at 12:20 pm
I’m a WAMU customer; Checking, business, mortgage.
They are a great bank and I will support them as long as they are open for business.
PS: My accounts are less than 100K
3 Flash // Jul 23, 2008 at 8:17 pm
Free - right on, just keep staying vigilant and making sure all your money is FDIC insured! You should check out the FDIC website. Based on spouse/number of kids its possible to get up to $1MM FDIC insured at one institution.
I really do believe WaMu has a competitive advantage in being a quirky bank out in the branches, and that its issues right now are almost all HQ-based. Who was approving the loans back in ‘05/’06? Who decided to go denovo into IL, AZ etc vs buying your way in like with NY and FL ? Who is largely responsible for stagnant deposit/checking account growth?
I’d wager these are at least 75% HQ issues vs field issues
4 Prashant Srinivasan // Jul 24, 2008 at 4:09 pm
Well, I’m always hedging my bets, so while I have a 3-month CD at Wamu (about 5k) I did withdraw most of my cash from the savings account.
I tried to shut down my savings account, but they wouldn’t let me. The cute girl at the counter sat me down with the cute girl at the table, and she had that real sad look in her eye… sigh. I gave in and withdrew all of the money except for $10.68 and left cash in hand and with the promise of coming back to deposit more after a future paycheck. Perhaps the paycheck in December?
5 kyrojbotts // Jul 25, 2008 at 7:40 pm
I worked for Wamu from 1990-1998 and watched them go from a local player to a national player. The growth was both unbelievable and unsustainable. Wamu will not survive the next 18 months. They will either be aquired or go the way of IndyMac.
6 Kelly Melvin // Jul 26, 2008 at 8:54 am
They will not be acquired because of way too much debt and it getting worse by the month. Nobody wants to eat that huge bill, and Wamu is running out of organizations to give them anymore money. They have already lost out big with the stock tanking so bad. I think Wamu will be in the pennies soon and delisted. Or even worse a huge reverse split or zeroing the stock down like KMART did and starting over. Anyway you slice it, alot of people will lose alot of money.
7 Eric // Jul 27, 2008 at 6:15 pm
While I agree with the logic stated above and came to similar conclusions myself after viewing WM quarterly statement, the analysis fails to factor in the human element. When the crowds are surrounded by pessimism and controlled by fear they make decisions that are largely irrational. If they decide they want their money out of WM they are going to get it, whether it is insured or not!
8 Flash // Jul 27, 2008 at 6:33 pm
Eric - good post, and you are absolutely right. This fear-based hysteria you’re talking about could be seen with fully insured IndyMac customers queuing up to withdraw all their money following the FDIC takeover - made absolutely no sense.
Taking a step back though, IndyMac was under seige for nearly three weeks yet only lost $1.3B or roughly 7% of their deposit base before being taken over. Without fully studying their Q’s their issue appears to have been lacking adequate alternate liquidity. This is not a problem WaMu has.
If WaMu were to fall under a similar seige and lose 7% of total deposits ~$13B total, they’d be fine since they have $50B in excess liquidity right now and would have more excess liquidity then at ~$37B. Nearly double IndyMac’s 3/31 total deposits of $19B.
It would take a bank run of epic proportions for WaMu to runoff the full $50B in excess liquidity - equating to 33% of total retail deposits, despite only having potentially ~$27B in uninsured retail deposits (see post for math on the $27B).
That type of hysteria frankly isn’t happening right now if you visit WaMu branches and probably hasn’t happened since they filmed “It’s A Wonderful Life”.
Not to say it won’t happen, just that it appears highly improbable from where I’m sitting.
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