THE FEDS MOVE IN AND FORCES A SALE OF THE TROUBLED INSTITUTION!
Washington Mutual, the giant lender that came to symbolize the excesses of the mortgage boom, was seized by federal regulators on Thursday night in what is by far the largest bank failure in American history. Regulators simultaneously brokered an emergency sale of virtually all of Washington Mutual to J.P. Morgan Chase. The remainder of WaMu, the nation’s largest savings and loan, will be operated by the government. Shareholders and some bondholders will be wiped out. WaMu depositors are guaranteed by the Federal Deposit Insurance Corp. up to the $100,000 per account limit. WaMu customers are unlikely to be affected. Howard Headlee, Utah Banker’s Association president, said Thursday night the purchase of Washington Mutual bank by JPMorgan Chase should have no ill effect on Utahns. “Chase is a very stable, strong financial institution,” he said.
The seizure and purchase of WaMu, Headlee said, is a positive move that should appear seamless to the public and ensure “continuity” for customers.
“Frankly, I don’t think the customer will see anything,” Headlee said. “There will be little to no impact on their accounts.” Headlee said he was not sure how many Washington Mutual branches were in Utah.
J.P. Morgan Chase is to take control Friday of all of WaMu’s 2,300 branches, to California, and will oversee its big portfolio of mortgage and credit card loans. It will also acquire all of WaMu’s deposits with the sale.
For weeks, the Federal Reserve and the Treasury Department had been nervous about the fate of WaMu, among the worst-hit by the housing crisis, and pressed hard for the bank to sell itself. As panic gripped financial markets last week following the collapse of Lehman Brothers, the government stepped up its efforts, working behind the scenes, and at points going behind WaMu’s back to work privately with potential bidders on a deal. The seizure and the deal with J.P. Morgan came as a shock to Washington Mutual’s board, which was kept in the dark: the company’s newly-minted chief executive, Alan C. Fishman, was in flying from New York to Seattle at the time the deal was finally brokered, according to these people.
The action removes one of America’s most troubled banks from the financial landscape, and helps to avoid sticking taxpayers with a huge bill for the rescue of another failing institution. As with Lehman Bros., the government allowed Washington Mutual to fail because it was less entangled with the rest of the financial system than a behemoth like American International Group Inc., which the government spent $85 billion to take over last week while it faced collapse. On Sunday, the government approved emergency measures to help stabilize Goldman Sachs and Morgan Stanley.
Federal regulators had been trying to broker a deal for Washington Mutual because a takeover by the Federal Deposit Insurance Corp. would have dealt a crushing blow to the federal government’s deposit insurance fund. The fund, which stood at 45.2 billion at the end of June, has been severely depleted from the sudden collapse of IndyMac Bank. Analysts say that a failure of Washington Mutual would cost the fund upwards of $20 or $30 billion. The deal will end the WaMu’s run as an independent company, but stabilize the bank’s stabilize its finances and shore up a balance sheet crippled by a toxic mortgages. It also comes as lawmakers have reached a stalemate over the passage of a $700 billion bailout fund designed to help ailing banks.