Case | HBS Case Collection | March 2009 (Revised October 2009)

Washington Mutual's Covered Bonds

by Daniel Baird Bergstresser, Robin Greenwood and James Quinn

Abstract

Washington Mutual issued 6 billion euro of covered bonds in 2006. The objective of the case is to ask whether these bonds are mispriced in late 2008. The case is set in September 2008, and Washington Mutual is facing considerable distress due to mounting losses in its mortgage portfolio. Following investment bank Lehman Brother's Chapter 11 bankruptcy protection filing in mid-September, the price of Washington Mutual's covered bonds has fallen to 75 per 100 of face value. As these bonds are overcollateralized, the case asks students to evaluate the underlying collateral portfolio in the event of liquidation, as well as assessing the likelihood of different outcomes. The case takes place during a period of considerable uncertainty in the global capital markets.

Keywords: Capital Markets; Financial Liquidity; Bonds; Mortgages; Price; Banking Industry; United States;

Citation:

Bergstresser, Daniel Baird, Robin Greenwood, and James Quinn. "Washington Mutual's Covered Bonds." Harvard Business School Case 209-093, March 2009. (Revised October 2009.)