9/26/2008:

Great. I do my checking there.

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WaMu seized by feds; Chase buys deposits, branches

Washington Mutual, the giant lender that came to symbolize the excesses of the mortgage boom, was seized by federal regulators Thursday night in an 11th-hour bid to prevent the largest bank failure in American history.

Regulators simultaneously brokered an emergency sale of virtually all of Washington Mutual to JPMorgan Chase. The remainder of WaMu, the nation’s largest savings and loan, will be operated by the government. Shareholders and some bondholders will be wiped out. WaMu depositors are guaranteed by the Federal Deposit Insurance Corp. up to the $100,000 per account limit. WaMu customers are unlikely to be affected.

JPMorgan Chase is to take control today of all of WaMu’s 2,300 branches, which stretch from New York to California, and will oversee its big portfolio of mortgage and credit card loans. It also will acquire all of WaMu’s deposits with the sale.

For weeks, the Federal Reserve and the Treasury Department had been nervous about the fate of WaMu, among the worst-hit by the housing crisis, and pressed hard for the bank to sell itself. As panic gripped financial markets last week following the collapse of Lehman Brothers, the government stepped up its efforts, working behind the scenes, and at points going behind WaMu’s back to work privately with potential bidders on a deal.

The seizure and the deal with JPMorgan came as a shock to Washington Mutual’s board, which was kept in the dark. The company’s newly minted chiefexecutive, Alan C. Fishman, was flying to Seattle at the time the deal was finally brokered, according to these people.

The action removes one of America’s most troubled banks from the financial landscape, and helps to avoid sticking taxpayers with a huge bill for the rescue of another failing institution.

As with Lehman Bros., the government allowed Washington Mutual to fail because it was less entangled with the rest of the financial system than a behemoth like American International Group, which the government spent $85 billion to take over last week while it faced collapse. On Sunday, the government approved emergency measures to help stabilize Goldman Sachs and Morgan Stanley.

Federal regulators had been trying to broker a deal for Washington Mutual because a takeover by the Federal Deposit Insurance Corp. would have dealt a crushing blow to the federal government’s deposit insurance fund. The fund, which stood at $45.2 billion at the end of June, has been severely depleted from the sudden collapse of IndyMac Bank. Analysts say that a failure of Washington Mutual would cost the fund upward of $20 or $30 billion.

The deal will give JPMorgan branches in California and other markets where it does not have a footprint. But JPMorgan Chase also will inherit a big loan portfolio of troubled mortgages and commercial real estate.

Hoboken NJ

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