From AP News:
The Federal Deposit Insurance Corp. seized WaMu on Thursday, and then sold the thrift's banking assets to JPMorgan Chase & Co. for $1.9 billion.
Seattle-based WaMu, which was founded in 1889, is the largest bank to fail by far in the country's history. Its $307 billion in assets eclipse the $40 billion of Continental Illinois National Bank, which failed in 1984, and the $32 billion of IndyMac, which the government seized in July.
=======
So, what can we learn from WaMu's ordeal?
David
The Federal Deposit Insurance Corp. seized WaMu on Thursday, and then sold the thrift's banking assets to JPMorgan Chase & Co. for $1.9 billion.
Seattle-based WaMu, which was founded in 1889, is the largest bank to fail by far in the country's history. Its $307 billion in assets eclipse the $40 billion of Continental Illinois National Bank, which failed in 1984, and the $32 billion of IndyMac, which the government seized in July.
=======
So, what can we learn from WaMu's ordeal?
- Among WaMu investors are Bill Nygren of Oakmark Funds, David Dreman of Dreman Value Management and Charles Brandes of Brandes Investment Partners. These are respectable, proven value managers with years of experience. So, the most important lesson here is that we have to do our own work. Even professionals can be very wrong.
- WaMu was Bill Nygren’s largest position, accounting over 15% of portfolio. The significant value destruction of WaMu caused Oakmark Select I Fund to drop 14.6% in 2007 and a further 9% drop this year.
- So, don’t make financial company the largest position, unless it has a very strong balance sheet and no liquidity issue with superior management like Berkshire Hathaway.
David
1 comments:
Hi,
just wanted to mention that the banks are failing largely because of the lack of credit. A strong balance sheet does not count for a bank due to its largely leveraged structure through deposit money multiplying. No matter how cash-rich a bank is, it will not be able to protect itself from runs unless of course they have large capital adequacy ratios to protect themselves, at least enough for the time being before help arrives.
Due to this largely leveraged structure, I have steered clear of taking up positions in banks so far. However, the Singapore banks have deposits secured by the government, which can be seen either as a boon or a bane, depending on which point of view you adopt. One extra lesson to take away might be to fully understand what you're investing in and have a firmg grip on risk;)
Just some personal comments.
Post a Comment