Last Man Standing

When you look at my industry today you might think everyone was playing a game of Last Man Standing. I started thinking about this when I found a several year old list of the top lenders in the country.  Four of them are gone, either having shut down or been absorbed by others and that doesn't include the two I'm about to mention The count of companies that have either shut down, have dramatically cut back operations, or have been acquired now totals 217. That goes well beyond the subprime area and affects many companies that never went near subprime.

Of perhaps more interest is the fact that it affects so many companies that would have thought to have been bullet-proof.  The obvious one is Countrywide which having seen their market value plummet by about $30 billion became an attractive take-over candidate.  Bank of America, which previously had bought some convertible preferred stock, bought the company for 15 cents on the dollar if you assume that the stock market valued its stock rationally last year.

Or maybe it wasn't rational given that the SEC is currently investigating the CEO unloading his shares as the stock was sinking. Is it reasonable to think that perhaps he had better information about the state of affairs in the industry and his company than the average guy?

The question about whether this was a good buy or not will not be known for a few years until the true extent of the liabilities becomes apparent. For example, Countrywide has $11 billion of loans in its portfolio that it would love to sell but for which there are no buyers. They are madly working trying to take those borrowers and get them into normal loans.  At that point they can sell the loans. But until they sell them, who knows what they are worth. 

The latest rumor involves Washington Mutual which arguably was the number two lender in the country.  It is in what have been described as "very preliminary" talks with JP Morgan Chase.  That's not much to hang your hat on but it look at it this way:  Six months ago the company was worth $35 billion and probably will again someday.  If you could buy the company today for $10 billion, that would be a pretty deal, wouldn't it?

If you want to see an ugly stock chart, check WaMu's using the ticker symbol WM.

Stay tuned.