What to do with those worthless WAMU stocks

Yeah, I was a (tiny) stockholder, via my 20+ old investment club WIMPS (Women Investing for Money, Power & Success). I just received this email today from the President of the Puget Sound Chapter of Better Investing:

For those of you holding WaMu stock, the news is grim. On September 25th, the FDIC essentially declared WaMu insolvent and took control of it. WaMu could no longer roll-over its short-term debt to meet demands for cash from depositors and creditors. The bank will continue to operate under new ownership and your deposits, CDs, loans and credit cards will continue per their original agreement. But in order to prevent further damage to the financial system, the FDIC agreed to sell the deposits and certain liabilities of the bank to JPMorgan Chase & Co. This includes the branches which will eventually get labeled as JPMorgan Chase. The unsecured and senior debts and preferred shares of WaMu, totaling about $20 billion in value before-hand, are not being assumed by JP Morgan and thus are also worth very little, if anything. It is very rare for the government to take control of a corporation, and I think this is a testament to how tough the current times are, especially in the financial sector.

For stockholders in WaMu, it continues (probably very temporarily) under the symbol WAMUQ. Today it was trading at about 3.8 cents per share. I would take advantage of whatever liquidity is there to sell immediately. If it was held in a taxable (non-IRA) account, the tax-loss has greater economic value than the actual investment. You might use it to offset gains or regular income up to $3,000 this year, after discussions with your tax advisor, of course! You may also want to contact your broker to see if they will waive their commission fee; many will waive the fee when selling fractional shares or for holdings that are nearly worthless.

Lessons learned? First, the BetterInvesting tenant of diversification is critical. With luck, your lost WaMu investment wasn’t a large piece of your nest-egg. Next, please don’t underestimate the power of the PERT-A. The trends in profits and margins had been negative for WaMu for a long-time. Just deciding to “ride it out” under such conditions is like ignoring an EKG that shows a heart-murmur.

In my experience, the sooner you identify problematic trends in a holding, the better. At that point, if you can’t convince yourself that the problems are short-term and within the control of management, you’d better find safer pastures for your funds.

Dan Rutter, CFA
Associate Director, Puget Sound Chapter, BetterInvesting

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2 comments

  1. Dennis

    Look, i am a free market guy, but the banks, etc., have done a horrible job of promoting refi’s, resets, etc.

    The Government could probably save us billions if they had their own mortgage company offering 4% mortgages for 5 years to get everyone thru this……..I guarantee it wold be billions less……