JPMorgan takes over Washington Mutual

We’re sorry, this feature is currently unavailable. We’re working to restore it. Please try again later.

Advertisement

This was published 15 years ago

JPMorgan takes over Washington Mutual

The US government has closed struggling Washington Mutual, the second largest savings and loan institution in the United States, allowing banking giant JPMorgan Chase to buy its operations for $US1.9 billion ($2.3 billion).

The collapse of Washington Mutual (WaMu) is by far the biggest bank failure in history, eclipsing the 1984 failure of Continental Illinois National Bank and Trust in Chicago.

JPMorgan Chase, which acquired Bear Stearns only six months ago in another shotgun deal brokered by the government, will take control of all of WaMu's deposits and bank branches, creating a nationwide retail franchise that rivals only Bank of America.

In the deal announced by the US Federal Deposit Insurance Agency (FDIC) tonight, banking giant JPMorgan Chase acquired the deposits, assets and some liabilities of the bank based in Seattle.

Washington Mutual, incorporated in 1889 in the north-west coast city, had been seen as heavily exposed to the mortgage crisis sweeping the country, and its shares had dropped some 85% this year.

Observers have speculated for months that it would be the next victim of the economic firestorm which has engulfed financial institutions across the country, sparking global turmoil.

The news came as US lawmakers were trying to hammer out an unprecedented $US700 billion ($839 billion) rescue plan, which if agreed would be the largest Wall Street bailout since the Great Depression of the 1930s.

The purchase of Washington Mutual, which had about $US188 billion ($225 billion) in deposits, creates the largest US depository institution with more than $US900 billion ($1.08 trillion) 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.

''Our people have worked hard to build a strong franchise and balance sheet - making this compelling transaction possible.''

Earlier this year, the banking giant also took over Bear Stearns, which had been one of the most high-profile victims of the US subprime property crisis.

In May, Bear Stearns shareholders approved a deal selling the former 85-year-old investment giant for a bargain-basement price of $US1 billion ($1.2 billion), concluding a deal engineered in March by the 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.''

Before Thursday's announcement, Washington Mutual was still worth $US2.9 billion ($3.48 billion) dollars on the stock market.

But according to recent estimates by the ratings agency Standard & Poor's it was $US14.4 billion ($17.27 billion) in debt.

JPMorgan Chase said the deal would add some 5400 agencies to its chain, and specifically boost its presence on the Pacific coast.

The deal would add some 0.50 cents to its share values in 2009, JP Morgan Chase added, saying it expected to incur pretax merger costs of some $US1.5 billion ($1.8 billion).

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 spiralling into a crisis, Washington Mutual continued to increase its reserves for bad debt, which hiked from $US1.53 billion ($1.83 billion) in the fourth quarter of 2007 to $US10.3 billion ($12.35 billion) nine months later.

Anxious clients had already begun to show their concern.

The Financial Times reported last week that deposits have dropped by $US5 billion ($6.0 billion) dollars since June - a sign of panic which could see a rush on the bank as account holders line up to withdraw their money.

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 late Thursday.

The FDIC - created in 1933 during the Great Depression following a raft of bank failures - guarantees the safety of up to $US100,000 ($119,000) 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.

AFP

Most Viewed in Business

Loading