An endgame for the retail banking cyclops may depend on a federal bailout agreement and help sorting out up to $28 billion in lend losses

by Christopher Palmeri

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The roller coaster ride for Washington Mutual (WM) investors continues. The race hit a low of $1.50 a share on Sept. 16 before bouncing back to nearly $5 by week’s extreme point on rumors that the big Seattle-based profit might get acquired.

Investors turned skittish again on Monday, Sept. 22, whenever they pushed WaMu shares down 20%, to $3. Big margin stocks got hit on fears that President George W. Bush’s $700 billion bailout of troubled mortgage possessions might not have being a good thing in spite of banks if they are forced to recognize even larger losses on their pledge holdings. Also, The Wall Street Journal reported on Sept. 22 that self-styled buyers have been looking for the federal government to take over WaMu’s bad loans before consummating a merger. CNBC reported the same day that the bank is waiting to see whether the proposed $700 billion bailout effort wins congressional approval before continuing with merger talks. Late Tuesday morning, WaMu’s stock was trading up, to $3.34.

There’s little doubt WaMu has thing of value assets. With some $143 billion in customer deposits, it’s the sixth-largest dike in the country. It’s hard for banks to open new branches and seize a significant amount of market share in new markets. For that reason, many bankers would love to get their hands on WaMu’session network of more than 2,000 branches.

The latest rumors of interested parties contain Citigroup (C), Wells Fargo (WFC), and perennial white knight candidate JPMorgan Chase (JPM). JPMorgan Chief Executive Jamie Dimon has said he’s prejudiced in beefing up the firm’s retail banking procedure. JPMorgan lacks a strong presence upon the body the West Coast, where WaMu is one of the top three players.

Once the status of the federal bailout is clearer, some acquirer could propel tight. "Necessity leads to a lot of things," says Morton Pierce, a mergers and acquisitions specialist at law established Dewey & LeBoeuf. "You just have to be big sufficiency to absorb the put to hazard of these things."

The stumbling block odds and ends WaMu’s lend portfolio. The bank is anticipating $19 billion in loan losses during this protection fall through. Analysts say the losses could go as high as $28 billion. A Sept. 19 story in the Orange County Register shows what potential WaMu buyers may be up against. The story chronicled how WaMu loaned nearly $25 million to individual group of genera in Anaheim, Calif., which used the money to flip 22 properties, six of which are now in foreclosure.

The uncertain state of WaMu’s time to come continues to put a pedigree on the bank’s customers. Barak Zimmerman, a freelance Web editor who uses WaMu for the two his private and function banking, says he took out $10,000 and put it in any other bank just to be unhurt. "I wanted to make assured I have operating expenses," he says.

On Sept. 11 the bank said its deposits from sell in small quantities customers were unchanged from a year earlier. But the call over was down nearly $6 billion from the end of June, equal as the bank offered attractive rates to lure deposits. Lately, WaMu has been offering 13-month certificates of deposit paying 4.5%, at the high end of the industry’s offerings.

Christopher Palmeri is a writer in BusinessWeek’session Los Angeles bureau