Next Victim: Washington Mutual

9/26/2008:

Great. I do my checking there.

washington-mutual-seized-by-fdic-hoboken-nj.jpg

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.

19 Responses

  1. rag246 says:

    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 a song and a dance.

    WaMu didn’t collapse last night. It was collapsed. Suicided, if you will.

  2. JDSalinger says:

    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.

    Best,
    Frank Miller
    http://www.theoffshorebankaccount.com

  3. Furey says:

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

  4. starfish says:

    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.

  5. hoboken411 says:

    I’m glad to know I don’t have to worry:

    Here’s what this change means for you:
    What’s different?

    * Your deposits at WaMu are now backed by the financial strength of Chase in addition to continuing to be insured by the FDIC.

    * If you bank at both WaMu and Chase, your deposits continue to be insured separately today just as they were yesterday, and generally will be for another six months. At that time, your deposits will be insured by the FDIC for up to $100,000 per depositor (with an additional $250,000 for self-directed retirement accounts), and will continue to be backed by the strength and security of JPMorgan Chase.

    What stays the same?

    Continue to bank just as you usually do:

    * same account numbers,
    * same Washington Mutual name on your account,
    * same checks, debit cards, credit cards, deposit slips,
    * same online banking website and passwords,
    * same branches & ATMs,
    * same familiar bankers, and
    * same great service!

    What will change? (Soon:)

    * You’ll be able to use over 9,300 Chase ATMs fee-free – jointly, that’s 14,000 ATMs for your banking convenience!

    In the future

    * You’ll begin to see the Chase name on your statements, online, and on your credit cards as they reissue.

    * Your branch will be re-named Chase and you’ll be re-issued new debit cards with the Chase name. Until then, bank as you do today.

    * As our systems merge, you’ll be able to use any of the Chase branches nationwide. This won’t take place this year, and we’ll let you know well in advance of any changes.

  6. dawnrose says:

    I was worried at first myself. I found out we’re safe as long as we have less than $100,000 in WaMu.I was concerned because WaMu is where my tenant’s security deposit is. I deposit my tenant’s rent in WaMu as well.

  7. HansBrix says:

    Oh looky what I found here. Remember those tv ads in which the young and hip schooled the stogy old bankers in the new way of banking?

    http://www.youtube.com/watch?v=BJ7EIKbnnkw

    Yeah. Too bad they didn’t listen those old fools. They might still be in business.

  8. frink says:

    guess now they really are “as free as a barn swallow.”

  9. powerserg says:

    Investors saw this coming at least two months ago. Any stock that drops below $5 is speculative in severely bad market conditions. Nothing could be reported to the general public because this could cause a scare to withdrawal. 😯

    I honestly think things should start to look better in the economy. WaMu is probably the last of it. Agree?

  10. HansBrix says:

    More unintentionally hilarious WaMu fun:

    http://www.youtube.com/watch?v=ha0cg7LkQ2w

    http://www.youtube.com/watch?v=BfmJWYJFYfk

    Could these ads be deemed adequate warning to shareholders?

    “Come to WaMu (whoo hoo!) where we threw the banking rulebook away!”

  11. elainetyger says:

    Well, we lost at least $2500 and probably $5000 because of this, since we had a corporate bond in an IRA. Anybody that has mutual funds with corporate bonds in their IRA will take smaller hits, but it’s not just rich folks who get hit on this.

  12. Easy-E says:

    [quote comment=”108372″]Oh looky what I found here. Remember those tv ads in which the young and hip schooled the stogy old bankers in the new way of banking?

    http://www.youtube.com/watch?v=BJ7EIKbnnkw

    Yeah. Too bad they didn’t listen those old fools. They might still be in business.[/quote]

    Some of those old fools already went under!

  13. costume says:

    [quote comment=”108361″]I was worried at first myself. I found out we’re safe as long as we have less than $100,000 in WaMu.I was concerned because WaMu is where my tenant’s security deposit is. I deposit my tenant’s rent in WaMu as well.[/quote]

    I looked and my savings account interest rate went from 3.25% to 4.0% on the 26th.

  14. matt_72 says:

    [quote comment=”108384″]Well, we lost at least $2500 and probably $5000 because of this, since we had a corporate bond in an IRA. Anybody that has mutual funds with corporate bonds in their IRA will take smaller hits, but it’s not just rich folks who get hit on this.[/quote]

    Why would you ever buy a corporate bond in an IRA? It generally is hard to get decent execution when buying bonds for small accounts like 401Ks b/c bonds usually trade in increments of $1mm. And what bond if you don’t mind me asking? Chances are, it just went down in price b/c the spreads blew out a bit. You only LOSE money on bonds if the company files for bankruptcy and your recovery is less than par or if you sell the bond at a price below par (or whatever you bought it at). That isn’t to say I suggest you keep it, far from it. But bonds usually only drop in price to reflect the higher yield demanded by potential buyers of these securities.

    If you own a WaMu bond, I’d dump it ASAP. There is some talk that the holdco bonds have value b/c some cash may be located up there, but no one really knows……..it is a crap shoot.

  15. Cracker says:

    [quote comment=”108375″]Investors saw this coming at least two months ago. Any stock that drops below $5 is speculative in severely bad market conditions. Nothing could be reported to the general public because this could cause a scare to withdrawal.

    😯

    I honestly think things should start to look better in the economy. WaMu is probably the last of it. Agree?[/quote]

    Sure, I agree. I listen to the experts just like you.

    “Buying of sound, seasoned isues now will not be regretted”
    E.A.Pearce
    Market Letter New York Herald Tribune
    Oct. 30, 1929

    “Financial storm definitley pased.”
    Bernard Baruch to Winston Churchill
    Nov. 15, 1929

    Here….Have another glass of Cool-Aid.

  16. Rocker182 says:

    with the wamu stock at 17 cents nows the time to buy lol

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