Denial at WaMu and National City

A cold wind blows across eighty years of time, from the Great Depression to the credit crisis in this new century, where the new like the old watched the bubble in denial or years. Then in a matter of days, that denial was blasted away when the bubble finally burst.
Today, in the fatal tradition of Northern Rock, Bear Stearns and Indymac Bancorp, Wa Mu and National City both denied that they are faced with a liquidity crisis and claimed they were “well-capitalized.” Washington Mutual should be very “well-capitalized,” considering that the bank has already raised over $7B. But in the fog that is the credit crisis, no balance sheet is clear; what is off balance matters more than what the bank reports:

Washington Mutual Inc., responding to uncertainty in the marketplace, said it significantly exceeds all regulatory “well-capitalized” minimums for depository institutions and has excess liquidity of more than $40 billion.

The disclosure came hours after regional bank National City Corp. issued a similar missive after being forced to assert it is still credit-worthy.

National City chimed the same bell and rang the same hallow note:

In a bid to ease investor nerves, the Cleveland-based bank and mortgage lender issued a statement regarding their financial health , though it hasn’t seemed to quell the tension.

“National City is experiencing no unusual depositor or creditor activity,” the bank said in a statement posted on its website. “As of the close of Friday’s business, the bank maintained more than $12 billion of excess short-term liquidity.”

“Further, as a result of our recent $7 billion capital raise, National City maintains one of the highest Tier I regulatory capital ratios among large banks.”

We have already seen a parade of banks who lied and died; even Paulson and Helicopter (Bernanke) denied that the existence of a housing bubble until last summer, when they could deny it no longer. That Wa Mu and National City deny their obvious insolvency only seems to make it more true.

The runs will begin soon and don’t believe the lies coming from the media about the FDIC $100,000 limit:

Let’s get this out of the way right now: Your money is safe if it’s in an institution insured by the FDIC. The Federal Deposit Insurance Corp. covers up to $100,000 per institution, and even may provide additional coverage for IRAs in those banks. So, don’t head for the mattress store.

Let’s get this straight Jon, the FDIC was intended to save “a” bank, not THE banking system. Last weekend the takeover of Indymac Bancorp chewed up $4-8B of the $53B insurance reserves. That burn rate is unsustainable in the face of the certain upcoming new failures of some big banks and thousands of smaller ones:

Chris Thornberg at Beacon Economics says, “IndyMac was the first major institution that wasn’t too big to fail.” He says as the Feds are busy worrying about “the big boys”—Fannie and Freddie—hundreds, maybe thousands, of smaller, regional banks will now realize they have no savior. Thornberg says investors in those banks have to ask themselves, “Is this institution fundamentally safe?” Depositors with accounts insured by the FDIC don’t have to worry…unless the FDIC starts to run low on funds. That looks unlikely at the moment. It has $53 billion, and says IndyMac—by far the largest bank takeover this year—will cost it between $4 billion and $8 billion.

Right now the only thing that might be safe in Wa Mu or National City is what Aunt Milly keeps in her safe deposit box, unless it’s Wa Mu or National City stock certificates.

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