U.S. banking bailout moves ahead, WaMu, sickest of the U.S. regional banks

U.S. banking bailout moves ahead, there's a backlash building on two fronts: executive compensation and participation of foreign financial institutions.That second point threatens to derail any bid for troubled Washington Mutual by Toronto-Dominion Bank.There's broad agreement in Washington that the U.S. taxpayer's $700-billion purchase of troubled loans is necessary to the survival of the American banking systems. If finessed just right, there's an opportunity for U.S. taxpayers to take actually make a few bucks on this trade.However, politicians and the general public are going to struggle with any rescue package that enriches the folks who caused this crisis, or perceived outsiders.That's why you're now hearing populist calls to cap executive compensation at any financial institution that taps the bailout fund. Those calls are going to intensify as U.S. elections play out.
Then there's foreign participation in the bailout fund. The citizens of Buffalo already miffed about losing their football team to Toronto once a season. Now they're going to subsidize Toronto's banks, too? You can just see New York Senator Chuck Schumer, who runs the key finance committee, going ballistic on this one.
Which brings us to WaMu, sickest of the U.S. regional banks, and arguably the most attractive target. Seattle-based WaMu has a huge branch network and an equally huge portfolio of mortgages and loans - $309-billion, with a substantial amount of these assets impaired.WaMu formally went on the auction block last week. While the bank's board insists they have enough liquidity to keep rolling in the short-term, it's clear that in the not too distant future, WaMu is going to be tapping the bailout fund, big time. Back-of-an envelope estimates by one fund manager have WaMu needing to sell $40-billion of bad mortgages. TD Bank is reported to be kicking tires at this bank along with the big names in U.S. retail banking Citigroup Inc., J.P. Morgan Chase & Co., Wells Fargo & Co. Spain's Banco Santander SA is also said to be interested. There is no harm in looking. In fact, all the Canadian banks and insurers should be looking at U.S. acquisitions.But the winning bidders for WaMu will be the bank that shoulders the most balance sheet risk, while at the same time convincing the U.S. taxpayer to soak up a considerable amount of toxic assets. That balancing act will require considerable political goodwill from folks like Senator Schumer. Citi or JP Morgan are far better positioned to tap that support than a bank from Toronto or Madrid