WaMu Rises on Buffett Rumors (WM, GS, WFC)

Washington Mutual, Inc. (NYSE: WM) shares rose today on speculation that Warren Buffett and Goldman Sachs (NYSE: GS) may be preparing to invest in the company. Shares jumped nearly 20 percent yesterday and continued their rise today after falling to a 12-year low earlier in the week. Many investors believe that the cash-rich Buffett may be looking to buy up some cheap financials at these levels and WaMu is definitely on sale! So, is WM a stock worth watching?

Washington Mutual reported its first loss since 1997 in the fourth quarter after itw as forced to write-down the value of its home mortgage unit by $1.6 billion and set aside $1.5 billion to cover bad loans. The bank also said that it would have to put aside $1.8 billion to $2 billion in loss provisions for the first quarter. Meanwhile, WaMu’s credit rating was lower to BBB from BBB+, bringing it just two steps above junk bond status.

Many analysts and investors are concerned about the company’s large exposure to high-risk markets and loan types that are performing poorly. These loans include home-equity lines of credit that have recently begun to see problems in California and other states hit heavily by the mortgage crisis. However, the Central Banks’ recent plan to inject liquidity in these markets combined with efforts to make mortgages more affordable could end up saving them from much of these losses.

Some are speculating that Warren Buffett has already begun building a stake in the company and plans to eventually merge it with his other large holding - Wells Fargo (NYSE: WFC). The idea may seem nothing more than a dream to some, but any such move could result in substantial value being unlocked for shareholders. WaMu shareholders would receive an ample buyout premium while Wells Fargo would get a cheap acquisition in today’s markets. Clearly, if the economy turns, this could become a great deal.

In the end, this is nothing more than a far-fetched rumor, but it is one that is definitely worth watching. Warren Buffett is one of the most popular investors, so his secrets get out more often than others. Whether or not there is any merit to these rumors remains to be seen, but investors should carefully watch for any Schedule 13D or Schedule 13G filings made by the great investor in WaMu!

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