The financial market crisis in the USA has caused the collapse of yet another bank. Thursday evening the US supervisory authorities (FDIC) closed down the largest savings banks in the USA, Washington Mutual, because too much of its deposits had been withdrawn. Similar to many other banks in the USA, Washington Mutual’s losses from the mortgage lending business proved to be the institution’s undoing. According to the FDIC’s press release, however, business for customers will continue as normal. Parts of the institution were sold to the US bank JPMorgan Chase for USD 1.9 bn. With this purchase, JPMorgan has bolstered its presence in the western USA in the field of retail banking.

 

A deal on the planned rescue package for the financial sector has still not been reached. Nevertheless, all of the decision-makers agree in principle to a large-scale plan, but there is still some dispute about the details. We expect a quick agreement as this is the only way to prevent even more damage to the financial system.

 

The financial sector will remain under intense scrutiny from investors as the political negotiations on the government’s plan to bail out the banking sector as a whole are proving to be difficult. Even though the major points of uncertainty now appear to be resolved, we still believe that the big financial institutions (both in the USA and in Europe) will have more write-downs in store for this quarter and for Q4 2008 as well. Economic conditions and the expectations of earnings revisions for 2009 are sure to keep the markets jittery over the short term. Only when the signs of stabilisation and improvement in the underlying factors begin to appear will the market start to take advantage of the opportunities to build up positions, and in this regard the attractive valuations should offer good support.