US crisis:Washington Mutual files for bankruptcy; Wachovia may be next and more to come.....

Washington Mutual files for bankruptcy

US financial crisis deepened further with 119-year old banking institution Washington Mutual deciding to file for bankruptcy protection after selling its banking operations to JPMorgan Chase. Washington Mutual, which has an asset of over USD 300 billion, will be the second major financial entity after Lehman Brothers to file for bankruptcy protection. The fall of Washington Mutual, popularly known as WaMu, is being viewed as the biggest banking failure in the American history. "Washington Mutual Inc announced on Saturday that it has, together with its wholly-owned subsidiary WMI Investment Corp, commenced voluntary cases under Chapter 11 of the United States Bankruptcy Code," a statement released by Business Wire said. WaMu, according to reports, was expected to lose around USD 19 billion on bad mortgages. Credit agency Standard and Poor's has already slashed its rating to eight level below investment grade. Earlier the US administration has seized WaMu and sold its banking operation to JPMorgan Chase for USD 1.9 billion. The American financial turmoil triggered by subprime mortgage crisis has taken a heavy toll on the global financial system, even as the US government is trying to work out a USD 700 billion bailout package. Apart from forcing Lehman Brothers, WaMu and IndyMac Bancorp into bankruptcy, the crisis has driven US's sixth largest bank, Wachovia, which has an asset base of over USD 800 billion, to look for a buyer. The turmoil had also forced Merrill Lynch to sell its shares to Bank of America, while the crisis-ridden AIG, Freddie Mac and Fannie Mae were bailed out by the US government.
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More corporate bankruptcies to come to the fore

US corporate bankruptcies have soared this year and more are on the way, highlighting a historic and pivotal year for those in the restructuring industry. Virtually no segment of the US economy has been safe from a rolling tide of job losses, stock market declines and home foreclosures that have knocked a range of industries to their knees. “We are certainly seeing more companies, particularly among insurance and financial institutions, going through unprecedented times fighting for survival,” said Randall Eisenberg, senior managing director for restructuring advisor FTI Consulting. Companies in more industries than ever are finding themselves in distress, ranging from retailers, home builders and restaurants, to financial firms, transportation providers and energy companies. But at the same time, the turmoil has created unprecedented opportunities for distressed or vulture investors , and those attorneys, consultants and other experts who help companies sort out their problems. “There are all of these (private equity investors) getting into the business, by buying and rolling up these industries that are in trouble,” said Sheila Smith, head of reorganization at Deloitte Financial Advisory Services. Government bailouts and increasingly large bankruptcies are starting to rewrite the rules for overseeing corporate collapses. Nothing serves to highlight the shift more than the rapid and unexpected downfall of some of the country's most powerful firms, including Lehman Brothers Holdings $637 billion bankruptcy filing this week. “The Lehman Brothers bankruptcy is taking the restructuring industry into uncharted waters,” said David Pauker, a managing director with restructuring advisor Goldin Associates. “Much of the learning and experience that derives from earlier failures of large financial firms—Drexel (Burnham Lambert), Refco, Enron—will be revisited and revised.” The number of US businesses filing for bankruptcy has soared 42% from a year ago, according to the Administrative Office for US Courts. Already this year, more public companies have filed for Chapter 11 and Chapter 7 bankruptcy than during all of 2007, according to BankruptcyData.com. The credit crisis has also complicated things for struggling companies, by hurting their ability to refinance their debts or even gain financing to exit bankruptcy protection. Auto parts maker Delphi Corp, for example, has been struggling to get financing to exit bankruptcy protection for most of the year. And as market fright intensifies , it becomes more likely other firms will fail or be forced to sell themselves. “Equity markets and other segments of the credit markets continue to crater, raising fears of systemic risk,” Diane Vazza , head of ratings agency Standard & Poor’s global fixed income group, wrote in a note to clients. Vazza will be among the specialists to address Reuters reporters and editors at its Restructuring Summit. While a global credit crunch has slammed financial firms, higher energy prices have sent regional airlines such as Denver-based Frontier Airlines Holdings into bankruptcy court.
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Source:ET