Next Victim: Washington Mutual


Great. I do my checking there.


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.

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19 Comments on "Next Victim: Washington Mutual"

7 years 4 months ago

Whoo Hoo.

7 years 4 months ago

Just typed this in another thread but: If you want proof that Wall Street will always be smarter than DC, look carefully at the way that went down, and pay attention to Jamie Dimon’s remarks in last nights conference call. To paraphrase, he said “we were going to do this anyway, with or without the government”. Which would have meant a shareholder buyout in a normal market, maybe even a small bidding war between GS, HSBC, and JPM. However, knowing full well that the FDIC would play into their hands, they feigned reluctance until they got what they wanted for… Read more »

7 years 4 months ago

This is unfortunate, but it should serve as a wake up call to all American investors. If you want to protect your money, you need to diversify and invest at least some of it overseas. These are hard times for American investing firms. I personally use offshore bank accounts and they have helped me with diversification and asset protection. If you want to read more on why offshore investing is smarter, feel free to visit my website.

Frank Miller

7 years 4 months ago

Well, bad news for WaMu, good news for Chase patrons w/more branches and ATMs now available to them.

7 years 4 months ago

They are only closing 10% of street corner branches that compete with Chase branches, so you’ll still be able to do your checking there 411. It’s business as usual.