Washington Mutual Inc. shares plunged to their lowest point in nearly two decades Wednesday after Lehman Brothers announced plans to sell off assets, leaving Wall Street on edge that other financial firms may be forced to take extreme measures in order to survive.
WaMu shares dove 98 cents, or 29.7 percent, to close at $2.32 — a 17-year low. Shares hit as low as $2.30 earlier in the session.
Lehman said early Wednesday that it plans to sell a majority stake in its investment management unit, spin off its commercial real estate assets and slash its dividend. The nation's fourth-largest investment bank also said it lost $3.9 billion during its fiscal third quarter.
The company, like many others on Wall Street, has suffered from bad bets on mortgage securities and other risky assets and has seen its stock price drop 89 percent this year.
WaMu, likewise, has seen its market value wither, as it battles rising mortgage delinquencies and defaults. Its shares have fallen 92 percent since early July of last year, right before the rapid erosion in the credit markets began.
With losses in its mortgage portfolio expected to peak at $19 billion, the Seattle-based bank could be Wall Street's next casualty, some analysts believe.
"The question becomes can it survive if it has billions and billions of dollars left to write down on those loans?" Ladenburg Thalmann analyst Richard Bove said. "What's going to keep it in business, what is going to keep it alive?"
One thing working in WaMu's favor is its valuable deposit base. Bove suspects management is "scrambling to find a buyer."
One indicator that the bank could be in trouble is the widening of its credit spreads, an indication that investors believe the debt is riskier.
Washington Mutual's spreads are greatly wider than Lehman's — and Lehman's spreads are already wider than those of Bear Stearns Cos. shortly before its demise in March, according to Len Blum, managing director at investment bank Westwood Capital.
WaMu does not typically comment on share price, market speculation or ratings agency actions, said spokeswoman Olivia Riley. She also said the bank does not generally make comments about things such as credit spreads mid-quarter.
WaMu took a number of hits this week, starting with the removal of its chief executive, Kerry Killinger, on Monday. He was replaced by Alan H. Fishman, the former president and chief operating officer of Sovereign Bank.
Also Monday, WaMu said it entered into a memorandum of understanding with the Office of Thrift Supervision, its primary regulator, indicating a higher level of regulatory scrutiny.
Standard & Poor's Ratings Services lowered its outlook on the bank to "Negative" on Tuesday, saying the regulatory action "highlights the challenging operating environment the company faces in managing its core mortgage franchise."