Washington Mutual a Hold
Washington Mutual is still a hold on our radar screen.The buyout rumor that's trailed the $35 billion dollar bank for some time now continues to intrigue us.
Wamu, as its fans call the consumer-friendly bank, operates 2,417 offices in 42 states.
They're currently cutting down costs, invigorating their serivce line, and more importantly, still trading at a dirt cheap valuation--the $41 stock trades at 13X earnings and yields over 4.4%.
Did I mention a 4.4% yield?
That's twice what the industry, on average, pays out.
The technicals look appealing--a brief look at my IBD weekly shows a cup and handle, perhaps the most bullish chart formation extant.
But what I really like about Washington Mutual is their no-frills attitude.
Here's what I mean.
I am a Citibank customer.
Granted there are plenty of Citibank branches here in Manhattan, I like knowing that I can take money out from a Washington Mutual ATM and not suffer the petty $1.50 charge.
You've got to hand it to Washington Mutual, which understands two things about the banking business: The profits are big enough to make money without gouging customers, and creative marketing goes a long way in an industry where consumers are used to being treated badly. WaMu, as the Seattle-based thrift is known, is fast becoming the enfant terrible of the banking industry. A regional player for most of its 100-year-plus history, WaMu more recently is giving a scare to banks around the country, particularly in California, New York and Illinois, its biggest areas of expansion... WaMu cleverly has figured out a way to capitalize on the consumer angst...Free ATMs are just one in WaMu's stable of gimmicks. Free checking is another.However, trouble may loom on the horizon.
The cost of money is slowly coming back to the rise.
Since June 30 2004, the Fed has raised the fed funds rate 9 straight times to 3.25%, where it currently stands.
Borrowing costs will likely keep rising next year--Goldman Sachs & Co expects the Fed's target rate to reach 3.5 percent by the end of 2005.
Washington Mutual declared in June that rising rates would knock at least 20 percent off 2004 earnings.
But maybe a little whacking is just what the stock needs.
Perhaps a suddenly depressed stock price amidst rising rates could spark interest amongst shoppers?
Then, it'd make perfect sense for WAMU to put itself on the block.
Its expanding regional presence is exactly what a larger player, less in touch with its consumer base, may be looking for.
Another catalyst at play is the credit card industry.
We all saw how Banc of America took out FleetBoston in order to expand its Northeastern operations.
And we just saw last week the same bank take out MBNA, turning BofA into the New King of Plastic.
The credit card industry is rapidly shrinking, and that's key.
WAMU recently bought Providian Financial, a credit-card issuer holding 10 million plus accounts.
Do you think, with the recent string of acquistions, another bank may be interested in Providian and its new parent?
As far as WAMU is concerned, it's a win-win situation.
A shareholder in Washington Mutual would be getting paid for his or her patience, in other words.
A fat dividend while I wait for a buyout?
I'll take that any day of the week.
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