Banking crisis: another big US bank asks for support

The company has announced a major shake-up in the way it handles new mortgage business. It will no longer give brokers what amounts to lines of credit for them to approve loans that are written by the bank, its so-called "wholesale business."

In doing so, it takes on the full burden of risk management and loans approval - and cuts the risk of fraud by intermediaries now being identified as a significant factor in many of the loans that have fallen into default.

The bank has more than 2,000 retail branches and it is through these that loans will now be processed.

The company has been on the hunt for emergency funding and the Wall Street Journal reported yesterday that private equity firm TPG has agreed to inject USD5 milliard and that the money may be available as early as today. That sent WaMa's stock soaring 29% on Monday. It is probable that increased controls over lending were a condition of the funding and the decision to withdraw from broker driven business is likely to have been one of the requirements.

In Q4 2007, the bank's annual profit was obliterated by losses of just under USD2 milliard.

The bank had identified mortgage business as a problem area in early 2007 and said that it would switch its lending priorities to consumer spending on credit cards and personal loans together with expanding its SME business. But as those sectors now look increasingly precarious, WaMa's strategy is in danger of unravelling.