Bye bye Washington Mutual

pppbigppp · Sep 26, 2008

largest bank failure in U.S. history

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/25/AR2008092503710.html?nav=hcmodule

Federal regulators last night seized the massive, troubled mortgage lender Washington Mutual in the largest bank failure in U.S. history, then immediately sold much of the company to J.P. Morgan Chase for $1.9 billion in a deal that will create the largest bank in the country.

The historic two-step was orchestrated by Sheila Bair, chairman of the Federal Deposit Insurance Corp., on terms that preserve Washington Mutual's deposits and avoid what could have been a huge drain on the insurance fund that protects deposits of up to $100,000.

The fall of Washington Mutual, which was the country's largest savings and loan, expands once again the vast, burned-over landscape of the financial industry. The federal government has seized mortgage financiers Fannie Mae and Freddie Mac and insurance giant American International Group. The five largest independent investment banks are closed or have changed their business model. Most of the largest mortgage companies are closed or have been sold. This is the first time, however, that a large bank funded mostly by deposits has failed during the current crisis.

The sale furthers the consolidation of the U.S. financial industry, which is increasingly dominated by a few colossal banks with more than $1 trillion in assets, offering a vast range of services. J.P. Morgan will become the largest, surpassing Bank of America.

The willingness of J.P. Morgan to cover all of Washington Mutual's deposits narrowly averts a massive hit on the FDIC. Washington Mutual held $188 billion in deposits as of June, far more than any bank that has ever failed. Analysts estimated that a Washington Mutual failure could have soaked up half the money in the government insurance fund, forcing a huge increase in the premiums paid to the fund by other banks.

Bair said Washington Mutual lacked the cash to fund its business. Since Sept. 15, depositors pulled $16.7 billion from the bank, and the company's bond rating, a measure of its financial health, was slashed several times until Washington Mutual was ranked among the nation's most fragile companies.

Congress is currently debating a plan designed to relieve pressure on troubled banks by buying their mortgage-related investments. That could have helped Washington Mutual, but regulators decided that waiting any longer "was not a responsible decision to make," Bair said.

She said the FDIC had been planning to seize the company Friday night but acted yesterday because of concerns that media leaks would scare depositors. "This was an eroding situation," Bair said.

Washington Mutual, based in Seattle, made thousands of mortgage loans that its borrowers cannot repay. That has left it saddled with billions of dollars in bad debts. The company has posted losses for three straight quarters, including a loss of $3.3 billion for the most recent quarter, ending in June.

Last week, the company placed itself on the auction block, but bidders failed to materialize.

J.P. Morgan submitted the highest bid in an auction regulators held Wednesday night, buying Washington Mutual's 2,200 branches, its $135 billion in remaining deposits -- and its vast portfolio of troubled investments in mortgage-related securities. The deal does not affect depositors -- even those with deposits over the federal insured maximum -- or people with mortgage loans held by Washington Mutual.

J.P. Morgan said that it would immediately write down $31 billion to reflect the deteriorated value of those investments and that it would add $3.6 billion to its own loss reserves. The company also said it would issue $8 billion in common stock this morning before the markets open, creating the larger capital cushion it needs to absorb the troubled company.

J.P. Morgan chief executive Jamie Dimon said he was undeterred by Washington Mutual's financial problems and relatively unconcerned about the short-term struggles of the financial industry -- or the congressional debate about a possible bailout.

"We're getting franchises of this company for a long period of time," Dimon said on a conference call last night. "We didn't do this because we're guessing the economy is going to get a little bit better or going to get a little bit worse."

Washington Mutual had rejected a March offer of $8 a share from J.P. Morgan. The company's then-chief executive was subsequently fired.

With the acquisition, New York-based J.P. Morgan will gain a massive, long-desired presence on the West Coast. Neither company has branches in the Washington area. Washington Mutual's branches are concentrated in California, with large clusters in New York, Florida, Texas and the company's home state of Washington. J.P. Morgan has large numbers of branches in the Midwest, the Southwest and New York.

J.P. Morgan and Bank of America are emerging as the great winners in the current crisis. Funded by deposits and less involved in the business of securitizing loans, they are strong at a moment of weakness for erstwhile rivals. J.P. Morgan already has carried off the remnants of investment bank Bear Stearns, which collapsed in March. Bank of America has picked up Countrywide Financial and Merrill Lynch.

"Some in corporate leadership are now coming to Washington for help, others are coming to Washington to help," Bair said. She applauded J.P. Morgan's willingness "to put private capital at risk" and compared Dimon's actions to long-ago rescues orchestrated by the company's legendary namesake.

J.P. Morgan is not buying the holding company that owns the thrift, nor is it paying anything to shareholders in the company, who have essentially been wiped out, or those who have purchased its bonds. The $1.9 billion J.P. Morgan paid to the government will be paid out to the holding company's surviving creditors, but many of them will suffer large losses.

Washington Mutual's stock dropped 25 percent, to close at $1.69 yesterday, then fell 73 percent more, to $0.45, in after-hours trading, reflecting the remaining value of what is now a shell company.

The failure marks the second time in recent months that a large bank has been seized by regulators before it was included in the FDIC's quarterly count of troubled institutions. IndyMac Bancorp, another large mortgage lender, was seized by regulators in July. That reflects the rapid pace of the financial crisis but has also raised questions about the care with which regulators are scrutinizing trouble companies.

The Washington Mutual-J.P. Morgan deal is not subject to any of the reviews that normally attend a major bank merger.

"When you have a failing institution, you don't have time for that," Bair said.
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1.9 billion? I wish I had save up some dough.

It's pretty clear that not everyone is having a bad day. Now that WaMu is wiped, will that reduce the cost of the bailout? Or could JP Morgan turn right back and sell the most toxic "assets" back to the taxpayers?

redao · Sep 26, 2008

All my money is in washington mutual.

Should I take them out? or can I even take them out ?

robbie380 · Sep 26, 2008

redao said:

All my money is in washington mutual.

Should I take them out? or can I even take them out ?
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they are open for business. your money is safe and you can do whatever you want with your money.

this part of the article should have bolded too.

J.P. Morgan submitted the highest bid in an auction regulators held Wednesday night, buying Washington Mutual's 2,200 branches, its $135 billion in remaining deposits -- and its vast portfolio of troubled investments in mortgage-related securities. The deal does not affect depositors -- even those with deposits over the federal insured maximum -- or people with mortgage loans held by Washington Mutual.

J.P. Morgan said that it would immediately write down $31 billion to reflect the deteriorated value of those investments and that it would add $3.6 billion to its own loss reserves. The company also said it would issue $8 billion in common stock this morning before the markets open, creating the larger capital cushion it needs to absorb the troubled company.
Click to expand...

tested911 · Sep 26, 2008

I heard that Wamu had over 300 Billion yes Billion in assets... And the feds sold them off for 1.9? LOL I wonder who got a steal.

Fatty FatBastard · Sep 26, 2008

tested911 said:

I heard that Wamu had over 300 Billion yes Billion in assets... And the feds sold them off for 1.9? LOL I wonder who got a steal.
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Are you familiar with a balance sheet?

JeopardE · Sep 26, 2008

http://img505.imageshack.us/img505/3687/wamutochaseaj4.png

rocketsregle · Sep 26, 2008

redao said:

All my money is in washington mutual.

Should I take them out? or can I even take them out ?
Click to expand...

I have a wamu account also and it looks like business as usual.

http://www.chase.com/welcomewamu/

Air Langhi · Sep 26, 2008

I hope they don't screw with the free checking. I love free outgoing wire transfers.

Turbo · Sep 26, 2008

How funny - I got an email last night at 10:44 from WaMu. The subject line read: "WaMu News | The holidays start today."

Didn't they get the memo?

redao · Sep 26, 2008

It is weird. You guys think it is funny..... when a bank like WaMu gone in one night, please

MiddleMan · Sep 26, 2008

So now chase is my bank, any feedback???

So who is the next bank to be bought out or seized by the Gov.?

pirc1 · Sep 26, 2008

FDIC covers CDs as well as money market accounts under 100k right?

pirc1 · Sep 26, 2008

MiddleMan said:

So now chase is my bank, any feedback???

So who is the next bank to be bought out or seized by the Gov.?
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Chase and American will not go down I believe.

Fatty FatBastard · Sep 26, 2008

pirc1 said:

FDIC covers CDs as well as money market accounts under 100k right?
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Up to 100,000 per account, as long as they are set up differently. (ie. individual, joint, etc.)

pirc1 · Sep 26, 2008

Fatty FatBastard said:

Up to 100,000 per account, as long as they are set up differently. (ie. individual, joint, etc.)
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Ok, thanks.

JustWannaChill · Sep 26, 2008

tested911 said:

I heard that Wamu had over 300 Billion yes Billion in assets... And the feds sold them off for 1.9? LOL I wonder who got a steal.
Click to expand...

You confuse the concept of total assets with net equity.

pgabriel · Sep 26, 2008

CNBC is reporting Wachovia in talks with Citi

robbie380 · Sep 26, 2008

pgabriel said:

CNBC is reporting Wachovia in talks with Citi
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we shall wait and see...hopefully it goes thru. it would be good for me

SamFisher · Sep 26, 2008

robbie380 said:

we shall wait and see...hopefully it goes thru. it would be good for me
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I wonder how many more banks will need to fail before the skeptics believe that this will cause banks to fail. Thus far we lost all five american investment banks, the world's largest insurer, the largest S&L and now Wachovia. We're running out of things to lose.

F.D. Khan · Sep 26, 2008

The question is whats next and who will benefit from the bailout and the consolidation of the banking/investment banking industry?

The primary answer is those that have already substantially marked down assets like Citigroup, UBS, JPMorgan and Bank of America.

Who's in danger? Banks that had toxic portfolios yet had not as aggressively marked down their portfolio. Wachovia is actually one of those plus their exit from the wholesale mortgage business a few months back probably limited their ability to mix in good new mortgages with their crappy ones thereby skewing their quality.

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