NEW YORK, NY - J.P. Morgan Chase bought the bulk of Washington Mutual's banking operations Thursday in a deal orchestrated by federal regulators who had seized control of the troubled thrift. In a sign of the bank's worsening condition, regulators said WaMu had lost $16.7 billion in deposits since Sept. 15. Saying WaMu had insufficient liquidity to meet its obligations and was "in an unsafe and unsound condition to transact business," the federal Office of Thrift Supervision closed the bank and appointed the Federal Deposit Insurance Corp. as receiver. The FDIC held a bidding process that ended in the sale to J.P. Morgan.
Regulators, who termed this the largest U.S. bank failure ever, said there will be no effect on the bank's depositors, but it appeared the WaMu shareholders would be wiped out as a result of the deal. J.P. Morgan said it will pay $1.9 billion to the FDIC to acquire WaMu's deposits, branches and a loan portfolio valued at $176 billion. J.P. Morgan anticipates write downs of about $34 billion on the loans. The leftover assets and liabilities, including subordinated debt, corporate debt and shares, along with the $1.9 billion payment from J.P. Morgan, will remain in the holding company, Washington Mutual Inc.
WaMu's shares plunged to 45 cents in after-hours trading Thursday as reports of the company's acquisition began circulating through the news media. The stock was worth $1.69 at the close of trading Thursday. The 52-week high for WaMu shares was $36.47. A J.P. Morgan spokesman said the bank couldn't yet estimate job losses resulting from the deal. The New York-based company has deposits of $911 billion and 5,410 branches following the transaction with WaMu. WaMu, the nation's largest thrift, has lost billions of dollars and seen its stock plummet almost 100 percent due to its exposure to subprime loans and the overall downturn in the housing market.
Bob Rogowski, a banking analyst and managing director at McAdams Wright Ragen Inc. brokerage in Seattle, said J.P. Morgan's takeover of WaMu's retail bank operation would strengthen its footprint in key sections of the country. "If you look at the footprint of J.P. Morgan, they're more Midwest, East Coast and they don't have much of a presence on the West Coast and to some extent the Southwest" where Washington Mutual is strong, Rogowski said.
A long list of financial firms had emerged as potential suitors to WaMu in recent weeks, including Citigroup, Wells Fargo, HSBC Holdings, Toronto-Dominion Bank of Canada and Spain's Banco Santander SA. Washington Mutual began life as Washington National Building Loan and Investment Association in 1889, the year of the Great Seattle Fire, and is one of Washington state's oldest companies.
Source: Business Journal