Deep into a pulverizing credit cycle with no clear turning point, newly minted chief executives at banking and thrift companies are increasingly garnering more attention for past experience selling companies — experience that many expect them to have to draw upon soon.
Against a backdrop of mounting investor discontent, analysts said, swift action to salvage shareholder value is the task at hand.
For Alan Fishman, who was hired as Washington Mutual Inc.'s CEO early this month, and Charles Rinehart, who took the CEO job at Downey Financial Corp. on Monday, the most viable option increasingly appears to be a sale, though both may wait for the Treasury Department's proposed $700 billion bailout plan, assuming it is approved quickly, and figure out how to capitalize on federal assistance to find a good buyer.
"One constant is that a new CEO's priority should be to maximize shareholder value. What's different now is that, with the most troubled companies, a sale might be the last best option," Jeff Davis, an analyst with First Horizon National Corp.'s FTN Midwest Securities Corp., said in an interview Tuesday. "The question is: Can you sell at a price acceptable to shareholders?"
Answering this question is a tall order that a CEO with past experience selling his own company — and negotiating the regulatory hurdles and securing a price that voting shareholders will approve — could be best suited to answer, Mr. Davis said.
Mr. Rinehart was the CEO of H.F. Ahmanson & Co. until Wamu bought it in 1998. Mr. Fishman was the CEO of Independence Community Bank Corp., a Brooklyn, N.Y., thrift company that Sovereign Bancorp Inc. of Philadelphia bought in June 2006.
The major hurdle for Wamu and Downey is an economy on the brink of recession. If housing markets deteriorate further this year and next, as many economists expect, the high-risk mortgages that got these companies in trouble in the first place could deteriorate even more rapidly and damage the balance sheets beyond repair, analysts said.
Wamu posted a $3.3 billion second-quarter loss, the largest of three straight quarterly losses for the Seattle company. Downey lost $219 million in the second quarter, the Newport Beach, Calif., company's fourth consecutive quarterly loss.
"I would be really surprised if I learned someday that either Rinehart or Fishman didn't come in knowing that selling their companies was something they might have to do fast," one analyst who covers the thrift industry said Tuesday. He asked not to be named to avoid alienating the companies.
Mr. Rinehart declined an interview request; a spokesman for Mr. Fishman did not return calls for comment.
Christopher Mutascio, a Stifel Nicolaus & Co. analyst, said in an interview Tuesday that struggling companies might prefer to unload certain assets to avoid an outright sale. However, with the financial sector in a tailspin, "there's a glut of assets for sale now, and that makes it awful difficult for a weaker company to step in and find a good buyer — or any buyer."
Also, selling an entire company is complicated by federal rules that require buyers to mark acquired assets to market, meaning they must be valued at current market rates, he said. In the case of Wamu, many of its mortgage assets have essentially no market value now, because there are no buyers for such assets.
"To sell the franchise right now, it's very, very difficult, and for some sellers, this might be what's held things up," Mr. Mutascio said.
Standard & Poor's Corp. lowered Wamu's counterparty credit rating Wednesday to CCC/C, from BB-minus/B, pushing it closer to default status. S&P cited concerns that, because Wamu has yet to announce a deal, investors might grow overly skittish if they fear a deal is not in the works.
Moody's Investors Service Inc. lowered its outlook on Wamu's financial strength Monday but affirmed its counterparty rating, noting the strength of Wamu's retail operation.
Robert Hoban Jr., an S&P credit analyst, said in an interview Tuesday that companies like Downey could sell bad assets to the government under the Treasury plan to bail out banks holding bad mortgage-related assets.
"Anything it can do to make it more attractive for buyers to look at companies in distress" will grease the wheels of the deal market.
Analysts said the situation may be less urgent for Robert Steel, who became the CEO of Wachovia Corp. in July. But the Charlotte company is under great investor pressure for momentous change after its 2006 acquisition of Golden West Financial Corp., a California thrift company that specialized in option adjustable-rate mortgages, the type of loans that burden both Downey and Wamu.
Wachovia reportedly expressed interest last week in a deal with Morgan Stanley, the former Wall Street investment bank that became a commercial banking company this week and said it is on the hunt for retail deposits.
Deal talks with Morgan Stanley were put on hold at least in part because of the movement in Washington, according to news reports this week. But investment bankers said in interviews this week that if the Treasury's plan went through, Wachovia might push for a resumption of talks.
Analysts said Mr. Steel's background would prove beneficial in this scenario. He was a Goldman Sachs Group Inc. executive before joining the Treasury in 2006 as a top lieutenant to Secretary Henry Paulson.
Mr. Mutascio said that with the rapid-fire change at Morgan Stanley over the past week — including a plan to sell up to a 20% stake to Mitsubishi UFJ Financial Group Inc. — it is impossible to assess the New York company's likely next move. But from Wachovia's view, if the Treasury plan went through and if Wachovia could unload some of its weak Golden West assets and then merge with Morgan Stanley to take advantage of the capital infusion, the deal could still be attractive to Mr. Steel.
Wachovia would not discuss the matter.
"I don't think there is a gun to their head to do anything immediately, but it might end up being a good option," Mr. Mutascio said. "And Steel would know how to handle it."
