Washington Mutual’s Failure Hurts Some Mutual Fund Investors

On September 25th, Washington Mutual (WM), the Seattle based loan and savings giant, was seized by the FDIC after depositors withdrew more than $16 billion from the bank in 10 days over concerns that the bank, unable to find a buyer quickly (the talks and rumors on potential buyers have been going on for a while), may not survive. The bank didn’t make it eventually. So far this year 14 banks have failed including WaMu, which is also the largest bank ever in history to go under with $310 billion in assets.

While savers can get their FDIC insured deposits back ($100,000 for single accounts and $200,000 for joint accounts, more details on how to protect against bank failure), investors who own WaMu stock won’t be as lucky because the stock is worthless now and the investments are not insured by anybody (check out whether my investments are safe if my broker fails for more). Even for those who don’t own the stock directly, they may still feel the pain if the mutual funds or ETFs they own in their 401(k), IRA, 529, or regular investment accounts invest heavily in WaMu. On September 26th, I received an email from Oakmark Funds regarding one of the impact of WaMu’s failure on one of their funds.

From Morningstar data, the top 20 funds with the largest share of WaMu are (% of the fund’s assets on WM):

  • Oakmark Select (OAKLX): 4.85%
  • Touchstone JSAM Institutional Lg Cp Val (CIJLX): 3.76%
  • Touchstone JSAM Institutional Value (CIJVX): 3.46%
  • Touchstone Large Cap Value (TLCAX): 3.37%
  • Transamerica Partners Instl Val (DIVLX): 3.32%
  • Transamerica Partners Value (DVVLX): 3.32%
  • Oakmark Global Select (OAKWX): 2.78%
  • Dreman Contrarian Large Cap Value (DRLVX): 2.69%
  • DWS Dreman Concentrated Value (LOPEX): 2.65%
  • Fidelity Select Home Finance (FSVLX): 2.55%
  • DWS Dreman High Return Eq (KDHAX): 2.37%
  • ING Large Cap Value (IVLAX): 2.24%
  • Oppenheimer Quest Balanced (QVGIX): 2.19%
  • AIM Financial Services (FSXSX): 2.00%
  • Dreman Quantitative Large Cap Value (DRQLX): 1.92%
  • Diamond Hill Financial Long-Short (BANCX): 1.78%
  • Columbia Global Value (NGLBX): 1.65%
  • Schwab Financial Services (SWFFX): 1.62%
  • Monetta Mid-Cap Equity (MMCEX): 1.31%
  • Rydex Banking (RYKIX): 1.29%

Fortunately, I don’t own any of the above funds in any account.

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5 Responses to “Washington Mutual’s Failure Hurts Some Mutual Fund Investors”

  1. Moneymonk |  Sep 29, 2008 at 3:28 pm

    I don’t own any of those either, However, the good thing about mutual funds it’s not too risky because of all the stocks inside of one

  2. Sun |  Sep 29, 2008 at 9:07 pm

    That’s right. Actually, there’s no big drop of the fund itself. That’s the beauty of investing in diversified funds instead of individual stocks :)

  3. aschmuck |  Sep 29, 2008 at 9:54 pm

    Did I miss something? JP Morgan bought Wamu. FDIC insurance does not come into play because JP Morgan is assuming all the deposits and the FDIC is not operating the bank. Do I have this wrong?

  4. Sun |  Sep 30, 2008 at 12:39 am

    aschmuck: WaMu was closed by the federal Office of Thrift Supervision and it was taken over by the FDIC. Then the bank’s deposit was acquired by Chase. Yes, in this case, customers won’t experience any difference when they go to the bank, but it was indeed first closed then bought by Chase. Usually when bank is taken over by the FDIC, it always seeks a buyer so it won’t have to operate the bank. Here, it just happened faster than other cases.