JPMorgan buys failed Washington Mutual
Saturday, 27 September 2008


AFP, WASHINGTON - JPMorgan Chase took over Washington Mutual after it collapsed in the largest US bank failure ever, adding to the massive pressures on the US financial system.
 
The savings and loan giant was taken over for 1.9 billion dollars in a deal announced by the US Federal Deposit Insurance Corporation (FDIC) late Thursday.
 
Washington Mutual (WaMu) had been heavily exposed to the US mortgage crisis and its shares had plunged some 85 percent this year -- leading to widespread predictions that it would become the next victim of the financial crisis.
 
JPMorgan Chase, which also took over Bear Stearns in March, acquired the deposits, assets and some liabilities of the Seattle, Washington based institution which has some 309 billion dollars in assets.
 
Its failure dwarfs the previous largest collapse, that of the 40-billion-dollar Continental Illinois Bank in 1984.
 
JPMorgan Chase said it would sell eight billion dollars in stock to raise capital.
 
Its purchase of WaMu, which had about 188 billion dollars in deposits, creates the largest US depository institution with more than 900 billion dollars in customer deposits, JPMorgan Chase said.
 
"This deal makes excellent strategic sense for our company and our shareholders," said JPMorgan Chase chairman Jamie Dimon in a statement.
 
Bear Stearns was one of the first big name victims of the US subprime mortgage crisis. JPMorgan Chase bought the 85-year-old investment bank for a bargain one billion dollars, in a deal engineered in March by the US Federal Reserve.
 
FDIC chairman Stella Blair offered assurances that all customers of Washington Mutual, which billed itself as the "bank for everyday people, focusing on middle-market consumers and small businesses," would be protected.
 
"For all depositors and other customers of Washington Mutual Bank, this is simply a combination of two banks," said Blair.
 
"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."
 
But the repurcussions were already felt in Washington.
 
Democratic presidential candidate Barack Obama described the government-brokered sale of WaMu as "the latest sign of the perilous situation facing our financial system and our economy.
 
"Although Americans with deposits at Washington Mutual should rest assured that they are safe under this arrangement, the failures of our financial institutions threaten economic instability, jobs, and the incomes of American families."
 
Before Thursday's announcement, Washington Mutual was still worth some 2.9 billion dollars on the stock market.
 
But according to recent estimates by the ratings agency Standard & Poor's it owed some 14.4 billion dollars in debt.
 
JPMorgan Chase said the deal would add some 50 cents to its share values in 2009, and that it expected to incur pretax merger costs of some 1.5 billion dollars.
 
Earlier this month, Standard & Poor's and Fitch lowered their ratings of WaMu's holding company, after Moody's Investors Service downgraded its debt to non-investment or "junk" status, complicating plans to raise fresh capital.
 
Even as the housing market was spiraling into a crisis, Washington Mutual continued to increase its reserves for bad debt, which hiked from 1.53 billion dollars in the fourth quarter of 2007 to 10.3 billion nine months later.
 
The US government "needed to find a buyer for WaMu because a takeover by the Federal Deposit Insurance Corporation would have dealt a crushing blow to the government's deposit insurance fund," the New York Times reported.
 
The FDIC -- created in 1933 during the Great Depression following a raft of bank failures -- guarantees the safety of up to 100,000 dollars of individual money deposited in member banks.
 
Several bidders had expressed interest in purchasing WaMu, including Citigroup, Wells Fargo, Spain's Banco Santander, HSBC of Britain, and TD Dominion of Canada, the Times reported.
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