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| WaMu becomes victim of crisis, JP Morgan gets assets |
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Time is GMT + 8 hours
Posted: 27-Sep-2008 03:57 hrs |
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| Washington Mutual Inc.'s headquarters is shown September 16, 2008 in Seattle. The collapse of Washington Mutual, the nation's biggest bank failure ever, and the sale of its assets to JPMorgan Chase highlighted the deep troubles of the sector amid a fast-moving US financial crisis. |
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The collapse of Washington Mutual in the biggest-ever US bank failure highlighted Friday the deep troubles of the sector amid a fast-moving US financial crisis.. The demise of WaMu, one of the largest US savings and loans, late Thursday came amid a fierce and fluid battle between the government and lawmakers over the US Treasury Department's proposed 700-billion-dollar rescue of troubled financial firms.. WaMu, heavily exposed to bad mortgage investments at the heart of the financial crisis, was closed by the Federal Deposit Insurance Corporation. The Seattle, Washington-based thrift had 307 billion dollars in assets.. In a deal orchestrated by the FDIC, JPMorgan Chase bought WaMu's deposits, assets and some liabilities for 1.9 billion dollars. JPMorgan Chase said Friday it plans to sell 10 billion dollars in common stock to raise capital, two billion dollars more than it announced late Thursday.. "The uncertainty over the fate of Washington Mutual was thankfully resolved overnight with the takeover by JP Morgan," said Brian Bethune, analyst at Global Insight.. "The takeover was not pretty -- with the FDIC seizing the company prior to the takeover -- but at least the job got done and that removes one major source of uncertainty from the markets," Bethune said.. WaMu was the largest bank failure in US history, dwarfing the collapse of Continental Illinois Bank, with 40 billion dollars in assets, in 1984.. JPMorgan Chase's purchase of most of WaMu's operations and assumption of its loan portfolio saved the FIDC from a costly raid of its fund that guarantees individual US bank deposits up to 100,000 dollars.. "The depositors and the markets are unaffected and the FDIC is off the hook. WaMu's shareholders and other creditors will likely get wiped out, but isn't that the way capitalism is supposed to work?" said Sherry Cooper of BMO Capital Markets.. JPMorgan Chase said in a statement late Thursday 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.. "This deal makes excellent strategic sense for our company and our shareholders," JPMorgan Chase chairman Jamie Dimon said in the statement.. The takeover marked the second time in six months JPMorgan Chase has swooped into a government-engineered buyout of a failing bank.. It snapped up Wall Street investment bank Bear Stearns on March 16 for a bargain one billion dollars.. Investors cheered the takeover, sending JPMorgan Chase shares soaring 6.40 percent to 46.24 dollars in late trading. WaMu shares were virtually worthless, sinking 90.3 percent to 16 cents.. Credit agencies Moody's and Fitch said Friday they were maintaining their ratings on JPMorgan Chase.. But Moody's said it was changing its outlook to negative from stable, signaling it could lower the rating, because of of the possibility that its asset quality "could deteriorate" further.. Cooper, the BMO Capital Markets analyst, noted widespread distress in the banking system, with "many" community and regional banks slashing dividends, closing branches and curbing lending to preserve capital.. "Many of these will fail, but without disastrous consequences," she added.. In a grim sign of the mounting pressures, the FDIC has identified 117 at-risk banks in the second quarter, up from 90 in the first three months of the year. — AFP
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