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Archive for Saturday, September 27, 2008

WaMu’s fall makes US history

Bank is largest in nation to collapse

September 27, 2008

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Arun Chatterjee waits for a branch of Washington Mutual to open Friday in downtown Sacramento, Calif. Washington Mutual, one of the nation's largest banks, was seized by the Federal Insurance Corp., Thursday, and then sold to JPMorgan Chase & Co.

Arun Chatterjee waits for a branch of Washington Mutual to open Friday in downtown Sacramento, Calif. Washington Mutual, one of the nation's largest banks, was seized by the Federal Insurance Corp., Thursday, and then sold to JPMorgan Chase & Co.

— As the debate over a $700 billion bank bailout rages on in Washington, one of the nation's largest banks - Washington Mutual Inc. - has collapsed under the weight of its enormous bad bets on the mortgage market.

The Federal Deposit Insurance Corp. seized WaMu on Thursday, and then sold the thrift's banking assets to JPMorgan Chase & Co. for $1.9 billion.

Seattle-based WaMu, which was founded in 1889, is the largest bank to fail by far in the country's history. Its $307 billion in assets eclipse those of Continental Illinois National Bank, which failed in 1984 with $40 billion in assets; adjusted for 2008 dollars, its assets totaled $67.7 billion. IndyMac, seized in July, had $32 billion in assets.

One positive is that the sale of WaMu's assets to JPMorgan Chase prevents the thrift's collapse from depleting the FDIC's insurance fund. But that detail is likely to give only marginal solace to Americans facing tighter lending and watching their stock portfolios plunge in the wake of the nation's most momentous financial crisis since the Great Depression.

Because of WaMu's souring mortgages and other risky debt, JPMorgan plans to write down WaMu's loan portfolio by about $31 billion - a figure that could change if the government goes through with its bailout plan and JPMorgan decides to take advantage of it.

"We're in favor of what the government is doing, but we're not relying on what the government is doing. We would've done it anyway," JPMorgan's Chief Executive Jamie Dimon said in a conference call Thursday night, referring to the acquisition. Dimon said he does not know if JPMorgan will take advantage of the bailout.

WaMu is JPMorgan Chase's second acquisition this year of a major financial institution hobbled by losing bets on mortgages. In March, JPMorgan bought the investment bank Bear Stearns Cos. for about $1.4 billion, plus another $900 million in stock ahead of the deal to secure it.

JPMorgan Chase is now the second-largest bank in the United States after Bank of America Corp., which recently bought Merrill Lynch in a flurry of events that included Lehman Brothers Holdings Inc. going bankrupt and American International Group Inc., the world's largest insurer, getting taken over by the government.

JPMorgan also said Thursday it plans to sell

$8 billion in common stock to raise capital. Its stock rose in midday trading Friday on the New York Stock Exchange, gaining $1.90, or 4.37 percent, to $45.36.

The downfall of WaMu has been widely anticipated for some time because of the company's heavy mortgage-related losses. As investors grew nervous about the bank's health, its stock price plummeted 95 percent from a 52-week high of $36.47 to its close of $1.69 Thursday. On Wednesday, it suffered a ratings downgrade by Standard & Poor's that put it in danger of collapse.

Comments

toe 5 years, 6 months ago

Thrifts have been a disaster since the 80's and in many ways we are all paying the price.

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dandelion 5 years, 6 months ago

Fishman should be thrown in jail, not given any money. What a scam.

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i_tching 5 years, 6 months ago

Guillotines are very efficient. Did you know that they have only one moving part?

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jmadison 5 years, 6 months ago

No comments from Sen Schumer concerning the compensation of his contributor Allen Fishman. Mr Fishman received 7.5 million dollars when he joined the bank on Sept 7 and is in line for another 6 million dollars in severance pay. 13 million dollars for 18 days on the job, not bad.

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