Thursday, September 25, 2008

Largest abk failure in US history: Washington Mutual

WaMu goes under, acquired by J.P. Morgan Chase

By John Letzing, MarketWatch
Last update: 10:01 p.m. EDT Sept. 25, 2008
SAN FRANCISCO (MarketWatch) -- In the largest bank failure in U.S. history, Washington Mutual Inc. succumbed Thursday to the fallout from the subprime mortgage crisis, was seized by federal regulators and rapidly acquired by J.P. Morgan Chase .
The federal Office of Thrift Supervision said it closed WaMu (WMon Thursday and appointed the Federal Deposit Insurance Corp. as receiver. The FDIC in turn conducted the bidding process that led to the acquisition by Chase (JPM)
Federal officials said WaMu would be open for business Friday.
The financial terms and extent of the transaction weren't clear Thursday night. As of June 30, Seattle-based WaMu had $307.2 billion in assets, 43,198 employees and 2,239 retail offices in 15 states.
WaMu had been one of the nation's largest mortgage lenders and was hit hard by the subprime crisis that has widened to threaten U.S. financial markets and led to the current crisis and the federal proposal to stabilize financial markets with a $700 infusion to buy up bad debt, much of it mortgage
WaMu had lost $16.7 billion in deposits since Sept. 15, according to the Office of Thrift Supervision, and had been seeking a buyer over the past week.
"With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business," the Office of Thrift Supervision said in a new release posted on its Web site.
leaving what once was the nation's largest thrift " ... with insufficient liquidity to meets its obligations ... " and " ... in an unsafe and unsound condition to transact business,".
The subprime mortgage crisis that spread last year, resulting in the current, widespread credit crunch and economic malaise, has claimed numerous victims recently, including large Wall Street brokerages such as Lehman Brothers Holdings Inc. (LEHMQ, and insurance giant American International Group Inc. (AIG.
The federal government is currently seeking consensus on a proposed, $700 billion bailout plan designed to restore some health to Wall Street, and get financial markets moving again. See related story.
The economic woes have also resulted in the failure of 12 banks so far this year.
Unlike those bank failures, however, J.P. Morgan's purchase of Washington Mutual's operations isn't expected to impact the FDIC's insurance fund, according to the Journal report, though it isn't clear how exactly it will be structured in order to avoid that.
Shares of Washington Mutual slid more than 70% to $0.45 in after-hours trading.
The Journal earlier reported that other potential suitors for Washington Mutual have included Citigroup Inc. (C, Wells Fargo & Co. (WFC, and private equity firms Carlyle Group and Blackstone Group (BX.
Though it made large, costly bets on the ultimately doomed subprime mortgage market, Washington Mutual nonetheless boasts a significant retail presence of 2,200 branches.
However, potential suitors including Spain's Banco Santander (STDand Toronto-Dominion Bank of Canada (TD)showed initial interest but then cooled to the idea of striking a deal, according to the Journal.

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