How in the world did they get into such hot water? I mean, it takes real talent to lose this kind of money. Buying at the highs, over-leveraging and using poor investment disciplines. Why does it all sound so familiar?Perhaps it is because these are the phrases that come to mind when I think of the plight of the individual investor who rode the market rollercoaster of the early 2000s. Yet, what I am discussing is not about them at all. No, they learned a hard and costly lesson when March of 2000 came in like a lion Saber-Tooth Tiger and continued downward with a bloody vengeance for the next two years. No, no ... they learned their lesson.
I am referring to the scores of poorly run banking and brokerage operations that have managed to make all of the combined post-depression market catastrophes look like a Sunday walk in the park. Maybe it is not entirely their fault, but they need to take a good portion of the blame for much of our economy's problems related to their poor decisions and lack of oversight on the millions of mortgages and loans that were improperly underwritten.
We already know that though. It is the most recent bit of news that is causing me to wonder how deep of a hole we are really in. This weekend, news for both Wachovia (NYSE: WB) and Washington Mutual (NYSE: WM) tells of desperate attempts by companies with big problems looking to bring in life-saving cash infusions. Unfortunately, both deals have the potential to really hurt shareholders. If you hold positions in either one of these fine messes, maybe it is time to consider alternative opportunities.
Call me old fashioned, but the weekend business news releases are starting to get to me.... While it is well known that Washington Mutual is in big trouble as its business is suffering the after-effects of all sorts of bad business practices, it did appear as if the TPG bailout would provide some relief until the credit markets regrouped. But as reported by the WSJ today, that deal stinks to high hell. Shareholders may wake to an ugly pre-market quote for WM as it is now being revealed that part of the TPG deal includes giving away somewhere in the neighborhood of $1.8 billion ... give or take a hundred million or so in order to get the deal done.
We already know that though. It is the most recent bit of news that is causing me to wonder how deep of a hole we are really in. This weekend, news for both Wachovia (NYSE: WB) and Washington Mutual (NYSE: WM) tells of desperate attempts by companies with big problems looking to bring in life-saving cash infusions. Unfortunately, both deals have the potential to really hurt shareholders. If you hold positions in either one of these fine messes, maybe it is time to consider alternative opportunities.
Call me old fashioned, but the weekend business news releases are starting to get to me.... While it is well known that Washington Mutual is in big trouble as its business is suffering the after-effects of all sorts of bad business practices, it did appear as if the TPG bailout would provide some relief until the credit markets regrouped. But as reported by the WSJ today, that deal stinks to high hell. Shareholders may wake to an ugly pre-market quote for WM as it is now being revealed that part of the TPG deal includes giving away somewhere in the neighborhood of $1.8 billion ... give or take a hundred million or so in order to get the deal done.
From the WSJ:
WaMu's deal has three basic giveaways. It is selling 176 million shares at $8.75 apiece, or a 20% discount to Friday's closing price of $10.95 -- a gift totaling $390 million. Second, it is selling $5.7 billion of securities that convert immediately upon shareholder approval at the same discount -- a giveaway valued at $1.4 billion. Finally, WaMu is giving Mr. Bonderman and his buddies the right to buy about 68 million shares for $10.06 each. So these warrants are already $61 million in the money.Well, at least Mr. Bonderman was able to help some of his friends.... (By the way; great name for the CEO of an ailing company with a fixed income problem... Bond-ER-Man.)
If that is not enough to get a stomach churning, the news of the Wachovia bailout came right on the heels of that little ditty. It seems that Wachovia is doing a similar transaction with "outside investors " that will bring in a total of approximately $6-$7 billion. Wachovia gets badly needed funds to help with liquidity and, in return, the yet-to-be-named bailout brigade will get s a heap of shares at a 15% discount to Friday's close. This is sure to be another huge Monday morning mess.
While it is possible for some perma-bulls to look at this in a favorable manner, it is not in the best interests of anyone's net worth to invest in a company that willingly shreds its share price over a weekend. What this really means is that management is not only desperate, but that they knew much more than they let onto during the last few months. That is not a good situation for an investor to be in.
Do not let the smokescreen fool you. There are still a great deal of problems within the financial sector. These bailouts are designed to bring life to corpses ... Dr. Frankenstein, calling Dr. Frankenstein.
Andrew Horowitz, is a money manager and author of bestselling The Disciplined Investor - Essential Strategies for Success. He discusses banking and financial issues in the most recent episode of The Disciplined Investor Podcast.
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