Friday, December 16, 2005

It's All About the Cards, Stupid: WM

Washington Mutual (WM), America's favorite savings and loan behemoth, is undervalued.

And not just because Wamu has a rich 4.4% yield.

Washington Mutual is buyout bait.

Sooner rather than later, we believe someone will snap up this $35 billion dollar bank.

The Seattle-based thrift is fast becoming the enfant terrible of the banking industry.

A regional player for most of its 100-year-plus history, WaMu is now giving banks around the country -- particularly in California, New York and Illinois, Wamu's biggest areas of expansion -- a run for their money.

The consumer-friendly bank, which operates 2,417 offices in 42 states, is cutting down costs and invigorating its serivce line/product portfolio.

And why shouldn't another player capitalize on Wamu's lean and mean diet?

Wamu's expanding regional presence is exactly what a larger player, perhaps less in touch with its consumer base, may be looking for.

It's also about the cards.

The credit card industry is rapidly shrinking, and that may make Wamu attractive, since it recently bought Providian Financial (PVN), a credit-card issuer with more than 10 million accounts under management.

We're reinitiating coverage on Washington Mutual -- which trades at a dirt cheap 11 X earnings -- with a buy rating.

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