Boy, by the time this is all done, what won’t JP Morgan own (well, besides Countrywide)? FDIC is winding up WaMu.
The bank had been struggling to find a resolution for some time, and an FDIC takeover would have strained the agency’s resources. But one has to why JP Morgan took this on at such a late hour.
From CNBC (hat tip reader Dwight):
JPMorgan Chase will acquire the deposits of Washington Mutual, CNBC has learned. The deal is expected to be announced during a Thursday night conference call at 9:15 p.m. ET. This deal will mark the end of independence for what once was the largest U.S. thrift.
Federal regulators have been heavily involved in putting together the transaction, which comes as WaMu is besieged by a huge number of bad mortgage loans on its books.
The exact details of the deal aren’t known as yet, but JPMorgan is expected to acquire WaMu’s deposits and branches, as well as other operations. The deal isn’t expected to expected to result in any hit to the bank-insurance fund….
WaMu came under further pressure to sell Wednesday when Standard & Poor’s slashed its credit rating deep into “junk” territory. The thrift replaced its chief executive this month after suffering losses totaling $6.3 billion over the previous three quarters….
Complicating the sale process is what to do with the thrift’s $227 billion book of real estate loans, more than half of which consists of home equity loans, option adjustable-rate mortgages, and subprime mortgages.
It was not immediately clear how much of WaMu’s troubled loans might be eligible for Washington’s $700 billion financial industry bailout program.
WaMu has a significant presence in California and Florida, two of the states hardest hit by the nation’s housing crisis. But its 2,239-branch network could appeal to many lenders looking to expand in retail banking, especially in the western United States and the New York City area.
WaMu ended August with $143 billion in retail deposits — roughly triple the size of the entire Federal Deposit Insurance Corp fund that backs customer deposits. It has also said it expects to end the quarter with a “well-capitalized” status well in excess of federal minimums.
Will update when the FDIC press release comes out.
Update 9:30 PM: From the FDIC:
JPMorgan Chase acquired the banking operations of Washington Mutual Bank in a transaction facilitated by the Federal Deposit Insurance Corporation. All depositors are fully protected and there will be no cost to the Deposit Insurance Fund….
JPMorgan Chase acquired the assets, assumed the qualified financial contracts and made a payment of $1.9 billion. Claims by equity, subordinated and senior debt holders were not acquired.
“WaMu’s balance sheet and the payment paid by JPMorgan Chase allowed a transaction in which neither the uninsured depositors nor the insurance fund absorbed any losses,” Bair said.
Washington Mutual Bank also has a subsidiary, Washington Mutual FSB, Park City, Utah. They have combined assets of $307 billion and total deposits of $188 billion.
So JP Morgan got to strip the assets for a mere $1.9 billion? That sounds like one hell of a deal.
Update Friday 12;25 AM: Sorry for the sloppy use of language above. Readers correctly jumped on me for saying that the deposits were “assets” when they sit on the liability side of the ledger. From a strategic standpoint, retail customers (and the core product is their deposits) are viewed as assets (as in something that has value and is worth paying for; indeed, when the FDIC liquidates banks, the deposits are usually sold), and normally a large deposit base is considered extremely valuable. However WaMu was paying top of the market for its CDs. so its average cost of funds on deposits is almost certainly no bargain.