Washington Mutual's Covered Bonds
9-209-093
REV: OCTOBER 22, 2009
DANIEL B. BERGSTRESSER
ROBIN GREENWOOD
JAMES QUINN
Wa ashingt Mu ton utual's C
Covered Bond ds September of 20 was not a calm time fo the world’s capital mark
008
or s kets. On Sept tember 7 fede erallybacke mortgage loan compani Freddie M and Fann Mae were placed into c ed l ies Mac nie conservatorsh by hip the U.S. governme a move de ent, esigned to sta abilize the em mbattled lenders. On Mond day, Septemb 15, ber global investment bank Lehma Brothers filed for Cha an apter 11 bank kruptcy protection. Broa US ad equity market inde y exes dropped by as much as 5 percent as rumors s d h t spread about potential liqu uidity crises at other majo financial in or nstitutions. A slight marke recovery th following d was attrib et he day buted to rum mors that the Federal Reserve was wo e orking on a ba ailout for the insurance co e ompany Ame erican Intern national Grou (AIG).1 up Ea arly on the morning of Sep m ptember 16, W
Washington M
Mutual’s cove ered bonds tr raded down to 75, from 83.05 the pre evious day (see Exhibit 1 Washingto Mutual (W
1).
on
WaMu) was one of the la argest saving and loans in the Unite States. Its covered bon program, i gs ed nd initiated two years earlier just r, before the housing market had begun a precipitous slid consisted of €6 billion in covered b e g d de, bonds outsta anding. Like many large ba m anks, WaMu was now in c considerable d distress. Th situation at WaMu had deteriorated in recent mo he t onths, with th bank repor he rting $6 billion loss n for ye ear-to-date June 2008. By e early Septemb WaMu’s covered bond had dropp by around 13% ber, ds ped d from January, as investors fore i ecast a possib distressed acquisition or seizure o the bank b the ble d of by
Feder Deposit Insurance Co ral I orporation (F
FDIC). With the chaos of September 15-16, the b f bonds appea ared
REV: OCTOBER 22, 2009
DANIEL B. BERGSTRESSER
ROBIN GREENWOOD
JAMES QUINN
Wa ashingt Mu ton utual's C
Covered Bond ds September of 20 was not a calm time fo the world’s capital mark
008
or s kets. On Sept tember 7 fede erallybacke mortgage loan compani Freddie M and Fann Mae were placed into c ed l ies Mac nie conservatorsh by hip the U.S. governme a move de ent, esigned to sta abilize the em mbattled lenders. On Mond day, Septemb 15, ber global investment bank Lehma Brothers filed for Cha an apter 11 bank kruptcy protection. Broa US ad equity market inde y exes dropped by as much as 5 percent as rumors s d h t spread about potential liqu uidity crises at other majo financial in or nstitutions. A slight marke recovery th following d was attrib et he day buted to rum mors that the Federal Reserve was wo e orking on a ba ailout for the insurance co e ompany Ame erican Intern national Grou (AIG).1 up Ea arly on the morning of Sep m ptember 16, W
Washington M
Mutual’s cove ered bonds tr raded down to 75, from 83.05 the pre evious day (see Exhibit 1 Washingto Mutual (W
1).
on
WaMu) was one of the la argest saving and loans in the Unite States. Its covered bon program, i gs ed nd initiated two years earlier just r, before the housing market had begun a precipitous slid consisted of €6 billion in covered b e g d de, bonds outsta anding. Like many large ba m anks, WaMu was now in c considerable d distress. Th situation at WaMu had deteriorated in recent mo he t onths, with th bank repor he rting $6 billion loss n for ye ear-to-date June 2008. By e early Septemb WaMu’s covered bond had dropp by around 13% ber, ds ped d from January, as investors fore i ecast a possib distressed acquisition or seizure o the bank b the ble d of by
Feder Deposit Insurance Co ral I orporation (F
FDIC). With the chaos of September 15-16, the b f bonds appea ared