Debt Crisis Warnings
Weiss Warnings of Financial Failures in Debt Crisis of 2008-2009
Between 2006 and 2009, Weiss Ratings’ sister company, Weiss Research, used ratings and other data to cover the nation’s largest financial institutions and issue specific warnings of future financial failures, as follows:
Bear Stearns: On March 14, 2008, the Federal Reserve Bank of New York provided a 28-day $29 billion emergency loan and Bear Stearns signed a merger agreement with JPMorgan Chase in a stock swap worth $2 per share, or less than 10 percent of Bear Stearns’ most current market value.
Weiss warning: 102 days before the failure, Weiss wrote: Bear Stearns has “sunk its balance sheet even deeper into the hole, with $20.2 billion in dead assets, or 155 percent of its equity; and is threatened with insolvency.” (See “Dangerously Close to a Money Panic,” Money and Markets, December 3, 2007.)
Lehman Brothers: The company filed for Chapter 11 bankruptcy on September 15, 2008, a landmark event that froze credit markets globally and began a new era of financial instability.
Weiss warning: 182 days before its failure, Weiss warned that Lehman was vulnerable to the same disaster that struck Bear Stearns. In addition, in the prior year, Weiss wrote that Lehman was in a “similar predicament as Bear Stearns” because of an even larger, $34.7 billion pile-up of dead assets, or 160 percent of its equity. (See “Closer to a Financial Meltdown,” Money and Markets, March 17, 2008; and “Dangerously Close to a Money Panic,” Money and Markets, December 3, 2007.)
Fannie Mae: Fannie Mae and its sister company, Freddie Mac, were placed under conservatorship of the U.S. government on Sunday, September 7, 2008, with the U.S. Treasury committing to bailout funds of $100 billion for each.
Weiss warning: Four years earlier, Weiss wrote “Fannie Mae is already drowning in a sea of debt. It has $34 of debt for every $1 of shareholder equity. That’s big leverage and of the wrong kind. Plus, the company has only one one-hundredths of a penny in cash on hand for every $1 of current bills. Think Fannie Mae can’t go under? Think again.” In addition, 41 months before the failure, Weiss listed Fannie Mae as a company not to touch with a “ten-foot pole.” (“My Chat With FDR,” Money and Markets, September 24, 2004 and Safe Money Report of April 2005.)
Citigroup bailout: On November 24, 2008, the U.S. government announced a substantial bailout of Citigroup to rescue the company from imminent bankruptcy.
Weiss warning: On August 6, 2008, 110 days before the failure, Weiss broadcast a live webinar naming Citigroup as the number one candidate for bankruptcy, along with the following banks listed as candidates for failure.
Weakest U.S. Banks and Thrifts
(With $25 Billion or More in Assets)
| Bank |
TheStreet.com Rating |
Credit Risk w/ Derivatives |
Total Assets
($ billions) |
| Citibank NA |
C- |
279% |
1,292.5 |
| Wachovia Bk NA |
C+ |
78% |
665.8 |
| Washington Mutual Bank |
D+ |
|
317.8 |
| HSBC Bk USA NA |
D+ |
721% |
188.3 |
| SunTrust Bk |
C- |
|
174.7 |
| National City Bk |
D |
|
152.5 |
| Sovereign Bk |
D+ |
|
81.9 |
| Huntington NB |
D+ |
|
55.6 |
| E*Trade Bank |
D+ |
|
48.2 |
| First Tennessee Bank NA |
D+ |
|
37.1 |
(For the video recording, go to http://www.moneyandmarkets.com/x-list-webinar. For the transcript, go to www.moneyandmarkets.com/x-list-transcript-1 and www.moneyandmarkets.com/x-list-transcript-2.)
Washington Mutual failure: On September 26, 2008, Washington Mutual Inc. filed for Chapter 11 bankruptcy protection from its creditors. In the voluntary petition the company listed assets of $32.9 billion, and debts of $8.2 billion.
Weiss warning: On August 6, 2008, 51 days before the failure, Weiss named Washington Mutual as a candidate for bankruptcy, stating: “Most people think that ‘big’ means ‘safe.’ So the first shock to most people reviewing this list is going to be the simple fact that some of the nation’s very largest banks and thrifts could be vulnerable to financial difficulties: Citibank, Wachovia, Washington Mutual, HSBC.” (MoneyandMarkets.com “X” List Webcast Transcript #1).
Wachovia Buyout: In the third quarter of 2008, Wachovia faced a banking crisis. On September 29, 2008, the FDIC announced that Citigroup would acquire Wachovia Corporation’s banking operations. However, on October 3, 2008, Wells Fargo and Wachovia announced they had agreed to merge in an all-stock transaction, apparently reversing the Citigroup deal. The acquisition deal was completed on January 2, 2009.
Weiss warning: On August 6, 2008, Weiss Research analysts Mike Larson stated that Wachovia “…made the fatal mistake of buying the nation’s largest and most aggressive mortgage lender — Great Western Financial — at the worst possible time. And it’s also got some serious exposure to derivatives.” Also, the headline of Weiss Research’s Safe Money Report stated Weiss’s warning: “Failure possible at Wachovia …” (MoneyandMarkets.com “X” List Webcast Transcript #1 and Safe Money Report of September 2008.)
Weiss warnings on other companies: Weiss warned that, due to massive losses and financial failures, investors should not to touch the following companies with a “ten-foot pole”:
Aames Investment
Accredited Home Lenders
Beazer Homes USA
Countrywide Financial
DR Horton
Fannie Mae
Freddie Mac
Fidelity National Financial
Fremont General
General Motors
Golden West Financial
H&R Block
KB Home
MDC Holdings
MGIC Investment
New Century Financial
Novastar Financial
PHH Corp
PMI Group
Pulte Homes
Radian Group
Ryland Group
Toll Brothers
Washington Mutual
Wells Fargo & Company
By yearend 2008, 11 of the 25 companies had filed for bankruptcy, been bailed out, or bought out. Virtually all had suffered severe stock declines, with average losses of 81.3 percent. Source: Safe Money Report of April 2005.