On WaMu's Birthday, JPMorgan Takes the Cake

Washington Mutual Bank (WM), the country’s largest savings and loan, was seized late Thursday night by federal regulators who immediately sold nearly all of its operations to JPMorgan (JPM) for $1.9 billion.

Regardless of this latest development, Washington Mutual depositors are fully protected, and won’t lose access to any of their money - even if it wasn’t fully insured, the Federal Deposit Insurance Corp., said.

FDIC Chairman Sheila C. Bair said:

For all depositors and other customers of Washington Mutual Bank, this is simply a combination of two banks. For bank customers, it will be a seamless transition. There will be no interruption in services and bank customers should expect business as usual come Friday morning.

According to Federal regulators, WaMu customers in the last 10 days withdrew nearly $17 billion from the bank, leaving the Seattle thrift “with insufficient liquidity to meet its obligations.” As a result, said the Office of Thrift Supervision, “WaMu was in an unsafe and unsound condition to transact business.”

Regulators typically take over failed banks on Friday afternoons. It gives them more time to sort out things over the weekend. The FDIC, notes Reuters - said it did the deal on Thursday due to media leaks and to calm WaMu’s customers.

With assets of $307 billion and deposits of nearly $200 billion, far more than any bank that has ever gone under WaMu is the largest bank to fail in U.S. history. The largest previous U.S. banking failure was Continental Illinois National Bank & Trust, which had $40 billion of assets when it collapsed in 1984.

Ironically, it was WaMu’s 119th birthday on Thursday.

JPMorgan said the transaction would now allow the company to have 5,410 branches in 23 U.S. states from coast to coast, as well as the largest U.S. credit card business. WaMu had 2,200 branches concentrated in California, with large clusters in New York, Florida, Texas and the company’s home state of Washington.

With its new acquisition, the New York-based commercial bank J.P. Morgan will rival Bank of America (BAC) as the nation’s largest commercial bank. Jamie Dimon’s company currently ranks second with $440 billion in deposits and $2.04 trillion in assets as of June ‘08. Clearly, the two companies are emerging as big winners in the current crisis.

Unfortunately, J.P. Morgan’s takeover of WaMu’s deposits is expected to wipe out WaMu stockholders and holders of the company’s senior debt. The transaction also represents a massive loss for private-equity firm Texas Pacific Group, which led a $7 billion investment into the thrift in April of this year. The transaction wipes out a $1.35 billion investment by David Bonderman’s private equity firm.

Disclosure: None

 

Comments

[rm516:]

Buyers were waiting for the detail of government bailout plan, how much WaMu can get before they buy it. Inappropriate push to please JPM !
Why ? No respect for shareholders

2008 Sep 26 06:04 AM

[madasiwannabe:]

This is a shame. JPM gets another great deal and shareholders get screwed. This isn't a buyout, JPM gets 32 Billion in assets for free which makes it white collar theft. Sure they pick up 30 Billion dollars in what they say are bad debts and have to pay FDIC 2 Billion, but any bailout plan will take that off their hands. They are already talking about making profits.

Wonder when Hank Paulson is going to start getting paid for working for these guys? He's proven to be a real money maker.

2008 Sep 26 06:09 AM

[fatcat:]

Bet the private equity was backed by the gov...why else would they have made that kind of investment..nobodys that stupid.

We are so screwed,nothing will ever be th same,at least in my lifetime..

2008 Sep 26 06:13 AM

[Niner:]

Was the takeover of WM necessary; or was it a nudge from the Bush Boys to get Congress to accept anything?

I do believe he is capable. I voted for that basta__ once; but, I do not trust him any farther than I can throw a bull by the tail. Even though I have the tendency to lean toward the Elephant, the Donkey is looking more and more like my kind of ride.

Hurry up election and the new president. It can't happen to soon.

I find it hard to believe WM could not have made it just alittle longer. And, benefited from the eventual Bailout.

Oops, I need to go puke!

2008 Sep 26 10:36 AM

[Smarty_Pants:]

Paulson/administration needs to get the bailout done or face the possible displeasure of Asian debt-holders.

++++++++

The U.S. financial crisis had taught China a lesson and that was: ``Why are we piling up these IOUs if they may default?'' China's economic expansion strategy, which emphasizes export growth that has led to trade surpluses and the accumulation of $1.81 trillion in foreign-exchange reserves, is the main problem, said Yu.

``Our export-growth strategy has run its natural course,'' he said. ``We should change course.''

source: www.bloomberg.com/apps...

++++++++

If the Chinese and Japanese think they are about to get shafted and start dumping Treasuries things will get very ugly, very quickly.

I personally don't think the bailout is such a good idea, but this helps explain at least one motivating factor behind the unfolding drama.

2008 Sep 26 11:05 AM

[Jase:]

Washington Mutual made extremely, extremely bad bets. Capitalism rewards appropriate risk, but it categorically decimates prolonged gluttonous behavior. Are any of you seriously surprised that WaMu failed? Are you serious?

I applaud JP Morgan's patience and opportunistic (if not predatory) actions. Clever bastards. Good for them. And I won't shed a tear for WaMu's shareholders (don't talk to me about post-bankruptcy pain, I was a shareholder of BRLC and IMBD; both went tits up earlier this year but I was absolutely aware of the risks involved).

I'm certain of one thing, when all this nonsense settles down (weeks, months, years from now), those that are left standing will be stronger. While it may not be apparent now, I'm of the opinion that that benefits us all.

If you think my comments are crass, I recommend that you skip work tomorrow, arm yourself with a bowl of ice cream, and sit down cross-legged in front of your TV and take in a few hours of old-school nature shows. Kenya, lions, impalas, African plains, all that.

Pay close attention: weak things die.

Happy Birthday WaMu.

2008 Sep 26 11:26 AM

[User 268076:]

Well done by the FDIC. One swift chop to the neck and it is over. No lingering and no direct costs to the FDIC reserves. Kudos to JPMorgan's managers too - kept their powder in good condition and are reaping the benefits of being a sound bank even in troubled times.

2008 Sep 26 11:47 AM

[The World's...:]

Fatcat is right. The US Government is working a lot of backroom deals that we won't know about for years and years.

2008 Sep 26 12:40 PM

[Jason Rines...:]

I am also in the camp this was shrewd capital investing by JP Morgan. What was not nice at all was the fleecing and market manipuation war between the big players that are going to hurt 300 M US citizens here for a long, long time. Those in charge of this socialist crap in Washington that participated in the swindles, turned there back and winked at it will be voted out, but I do not expect it this election cycle.

2008 Sep 26 12:44 PM

[who:]

"investing" by JPM? probably a gift for doing the BSC deal...and not let other foreign banks pick up the spoils (LEH by Japs and Brits)

bad for senior debt holders, stock should have sold off earlier. but this really changes the everything as small investors you just don't know what will happen next when the those in power can just take over companies (AIG, WM), force marriages (BSC, MER) and choose which ones to drop (LEH)

2008 Sep 26 01:14 PM

[Kinabalu:]

madasiwannabe

Paulson had nothing to do with this. It was FDIC all the way.

It's a GREAT deal for JPM. There were a lot of interested parties but JPM was the only one to step up with a deal that recognized what the FDIC wanted (no payments from their fund). They put the right package together. They get a great branch system, in an area of the country they have long coveted, and a stack of well-priced loans. The price is paid by the WM Common & Preferred shareholders, who get wiped out, and holders of subordinated and senior debt (approximately $90 billion), who get $1.9 billion to share between themselves..

2008 Sep 26 01:58 PM

[halconnoche:]

Please don't cry for shareholders. If they do their homework then they know the risk they are taking. If they don't do their homework, then they get what they deserve.

2008 Sep 26 03:13 PM

[Shawn Ayromloo:]

A government with enormous failed policies, affecting our wealth and honor in the world adversely, and busy to put together a deal that would take yet another 700 billions dollars from the tax payers has just brokered a deal with JP Morgan to give away profitable portion of WaMu and leave WaMu share holders with nothing to hope for!

The deal, if allowed to stay in place for ever, will rub WaMu investors of their entire investments and is most likely master minded by this administration to create enough fear and terror for smooth and quicker passage of 700 billion bailout.
WaMu is the nation's largest saving and loan bank in the US with over 300 billion dollars in assets and only 30 billion in bad debt and on numerous occasions the investors were assured that it had enough funds to go through this troublesome era - until 2010. For what reasons should the crook FDIC regulators be allowed to give it away for almost nothing to JP Morgan and leave nothing for the share holders?
Two following messages very much are descriptive of the way informed Americans feel about the WaMu and JP Morgan deal. This deal better be reconsidered or greater portion of Americans will stop investing in this country in the future.
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investors doing their due diligence and knowing WM already had several potential buyers should have stuck with it, which is what most of us did, only to be hosed by our own govt illegally taking the profitable parts of WM and basically giving it to JPM...this is illegal, unconstitutional, if there is a bank run, which I really hope happens now, I hope they all go down INCLUDING GS which is where paulson hails from...these washington thugs are just giving their own former coworkers tons of money so they can go back to private sector and lobby...paulson is stealing from us....bush knows about it....why don't "these suckers go down" is the question.....why is AIG which made a lot of bad, greedy bits proclaimed to be "too big to fail" when WM is the biggest thrift on the planet.....why is merrill allowed to be bought but LEH goes down....govt are just picking and choosing, strategizing, instead of actually helping americans...lower mortgage rates for those responsible enough to pay mortgage...otherwise, I hope the whole stinking rotting economy just totally collapses....and dollar is worthless....govt actions are not fair, hypocritical, and reward gluttony and greed...I paid off my mortgage and put some in investments by being frugal only to have govt. just steal it after long term WM investment as well as CFC and NCC...I don't flip or speculate or "day trade" or "short" them....if due diligence is no good anymore, what good is investing in anything??? if banks are all rotten, take all money out of them, and just buy other consumer goods nondiscretionary stocks....I called broker, they are incredulous, and say if I decide to sell WM, they can still get me something for taxes...a lot of good that will do, when rich under mccain will get an automatic 6100 tax deduction if you make over a million, if you are married with two kids and make 80 grand or less though under mccain still the same useless 700 tax deduction....grocery bills have gone up more than this.....DONT TRUST THE GOVT...and what the hell is mccain doing in washington??? he already admitted several times he knows nothing about the economy...there is not enough time to try to educate him as he doesn't even know how to use the internet.....mccain is not prepared to be president in times like this.....there is more to presidency than just pushing red button or attacking every country we don't like....
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I am, or should I say, was, a Washington Mutual shareholder. I did not hold this stock in an attempt to make a fast dollar, I have had this stock for a long time. The CEO of the company repeatedly assured the media that the company was sound through 2010. Then, on the eve of what looked like a "bailout deal" coming to fruition, the FDIC came in, and to the amazement of the WM management and everyone else, took over WM and basically gave it to JPMorgan. I say "gave" as the company is sitting on nearly 300 billion dollars in assets with 30 billion in obvious bad debt, yet it was sold for the fire-sale price of 1.9 billion dollars. I find it hard to believe that WM would not have been able to come up with 1.9 billion itself if that was what was necessary. This was done the evening before the "bailout" was assumed to be completed- including a provision where the government would buy up the bad debt of companies. This allowed JPMorgan, therefore, to buy 300 billion worth of assets for a mere 1.9 billion, AND they will be able to sell back the 30 billion in bad debt to the government! This sir, is robbery! So, not only have I lost my life savings in this outrageous seizure, I will have to also pay my taxes towards the "bailout" that will help buy the debt from JPMorgan! If you go to the Yahoo Finance Message Board, you will see there are MANY, MANY people in my similar predicament. I urge you to look into this outrageous situation and uncover the graft for what it was. The little guy needs a warrior and I hope that will be you. Thank you for your time, I look forward expectantly to your response.

2008 Sep 26 04:16 PM

[Cramer fan:]

Hey user, i'm truly sorry to hear you lose a large portion of your life savings. To have such a large portion of your investments with your employer, which i am assuming you worked for wamu, is definitely not the approach i would ever take myself. Most places have a stock purchasing discount, i've always taken advantage of them but sold them off typically after the required time. If you want to blame somebody, trust me the government is not the place you want to point the finger to. Everything points to the old ceo kerry killinger! He's the selfish fat cat that could have sold the company for 8 dollars a share to Chase then, but no. He insisted on keeping the bank independent. Why? It never had enough capital to sustain these loans with no chance of ever selling them on the secondary market. And with speculation building about the banks soundness, he leaves with his 23 million dollar golden parachute. Alan Fishman, gets hired to broker a deal to another institution. Mulitple ratings downgrades, turned all the attention of the media towards the wamu which compelled the customer base to cause a 16.7 billion dollar run. Leaving the shareholders with nothing. I believe in the government no matter how crooked they are to keep us safe. If they had to fork over the bill for wamu's imminent demise, it could have depleted FDIC's funds. I approve of the governments actions, and realize that the bailout is absolutely necessary for us to avoid GD2. AIG's take over is more of a dire situation than conspiracy theories regarding wamu. We are already engulfed as a nation in this mess, and if we can use our funds to purchase 700B+ mortgage loans for pennies on the dollar, re-write the loans to keep the homeowners in their houses, and more than likely turn a profit its a no brainer. Nobody wants to lose their house, and if the banks are not willing or even able to negotiate payments for homeowners to be able to afford their payments then let the government make it happen.

2008 Sep 27 12:13 AM

[Kinabalu:]

user 243159

I too am somewhat confused as to how the FDIC can come in and take over a bank with a capital ratio in the "well capitalized" category. I can understand that they would be concerned about the run that was apparently happening, but to react with what can only be called a gift to JPM, is beyond comprehension.

2008 Sep 28 08:35 PM