Washington Mutual Bank Is The Latest Tragedy In Money Market Crash!!!!!!!

by **J The Kidd** Sat Sep 27, 2008 3:04 am

"NEW YORK/WASHINGTON (Reuters) - Washington Mutual Inc was closed by
the U.S. government in by far the largest failure of a U.S. bank, and
its banking assets were sold to JPMorgan Chase & Co for $1.9
billion.

Thursday's seizure and sale is the latest historic step in U.S.
government attempts to clean up a banking industry littered with toxic
mortgage debt. Negotiations over a $700 billion bailout of the entire
financial system stalled in Washington on Thursday.

Washington Mutual, the largest U.S. savings and loan, has been one of
the lenders hardest hit by the nation's housing bust and credit crisis,
and had already suffered from soaring mortgage losses.

Washington Mutual was shut by the federal Office of Thrift Supervision,
and the Federal Deposit Insurance Corp was named receiver. This
followed $16.7 billion of deposit outflows at the Seattle-based thrift
since Sept 15, the OTS said.

"With insufficient liquidity to meet its obligations, WaMu was in an
unsafe and unsound condition to transact business," the OTS said.

Customers should expect business as usual on Friday, and all depositors are fully protected, the FDIC said.

FDIC Chairman Sheila Bair said the bailout happened on Thursday night
because of media leaks, and to calm customers. Usually, the FDIC takes
control of failed institutions on Friday nights, giving it the weekend
to go through the books and enable them to reopen smoothly the
following Monday.

Washington Mutual has about $307 billion of assets and $188 billion of
deposits, regulators said. The largest previous U.S. banking failure
was Continental Illinois National Bank & Trust, which had $40
billion of assets when it collapsed in 1984.

JPMorgan said the transaction means it will now have 5,410 branches in
23 U.S. states from coast to coast, as well as the largest U.S. credit
card business.

It vaults JPMorgan past Bank of America Corp to become the nation's
second-largest bank, with $2.04 trillion of assets, just behind
Citigroup Inc. Bank of America will go to No. 1 once it completes its
planned purchase of Merrill Lynch & Co.

The bailout also fulfills JPMorgan Chief Executive Jamie Dimon's
long-held goal of becoming a retail bank force in the western United
States. It comes four months after JPMorgan acquired the failing
investment bank Bear Stearns Cos at a fire-sale price through a
government-financed transaction.

On a conference call, Dimon said the "risk here obviously is the asset values."

He added: "That's what created this opportunity."

JPMorgan expects to incur $1.5 billion of pre-tax costs, but realize an
equal amount of annual savings, mostly by the end of 2010. It expects
the transaction to add to earnings immediately, and increase earnings
70 cents per share by 2011.

It also plans to sell $8 billion of stock, and take a $31 billion
write-down for the loans it bought, representing estimated future
credit losses.

The FDIC said the acquisition does not cover claims of Washington
Mutual equity, senior debt and subordinated debt holders. It also said
the transaction will not affect its roughly $45.2 billion deposit
insurance fund.

"Jamie Dimon is clearly feeling that he has an opportunity to grab
market share, and get it at fire-sale prices," said Matt McCormick, a
portfolio manager at Bahl & Gaynor Investment Counsel in
Cincinnati. "He's becoming an acquisition machine."

BAILOUT UNCERTAINTY

The transaction came as Washington wrangles over the fate of a $700
billion bailout of the financial services industry, which has been
battered by mortgage defaults and tight credit conditions, and
evaporating investor confidence.

"It removes an uncertainty from the market," said Shane Oliver, head of
investment strategy at AMP Capital in Sydney. "The problem is that
markets are in a jittery stage. Washington Mutual provides another
reminder how tenuous things are."

Washington Mutual's collapse is the latest of a series of takeovers and
outright failures that have transformed the American financial
landscape and wiped out hundreds of billions of dollars of shareholder
wealth.

These include the disappearance of Bear, government takeovers of
mortgage companies Fannie Mae and Freddie Mac and the insurer American
International Group Inc, the bankruptcy of Lehman Brothers Holdings
Inc, and Bank of America's purchase of Merrill.

JPMorgan, based in New York, ended June with $1.78 trillion of assets,
$722.9 billion of deposits and 3,157 branches. Washington Mutual then
had 2,239 branches and 43,198 employees. It is unclear how many people
will lose their jobs.

Shares of Washington Mutual plunged $1.24 to 45 cents in after-hours
trading after news of a JPMorgan transaction surfaced. JPMorgan shares
rose $1.04 to $44.50 after hours, but before the stock offering was
announced.

119-YEAR HISTORY

The transaction ends exactly 119 years of independence for Washington
Mutual, whose predecessor was incorporated on September 25, 1889, "to
offer its stockholders a safe and profitable vehicle for investing and
lending," according to the thrift's website. This helped Seattle
residents rebuild after a fire torched the city's downtown.

It also follows more than a week of sale talks in which Washington Mutual attracted interest from several suitors.

These included Banco Santander SA, Citigroup Inc, HSBC Holdings Plc,
Toronto-Dominion Bank and Wells Fargo & Co, as well as private
equity firms Blackstone Group LP and Carlyle Group, people familiar
with the situation said.

Less than three weeks ago, Washington Mutual ousted Chief Executive
Kerry Killinger, who drove the thrift's growth as well as its expansion
in subprime and other risky mortgages. It replaced him with Alan
Fishman, the former chief executive of Brooklyn, New York's
Independence Community Bank Corp.

WaMu's board was surprised at the seizure, and had been working on alternatives, people familiar with the matter said.

More than half of Washington Mutual's roughly $227 billion book of real
estate loans was in home equity loans, and in adjustable-rate mortgages
and subprime mortgages that are now considered risky.

The transaction wipes out a $1.35 billion investment by David
Bonderman's private equity firm TPG Inc, the lead investor in a $7
billion capital raising by the thrift in April.

A TPG spokesman said the firm is "dissatisfied with the loss," but that
the investment "represented a very small portion of our assets."

DIMON POUNCES

The deal is the latest ambitious move by Dimon.

Once a golden child at Citigroup before his mentor Sanford "Sandy"
Weill engineered his ouster in 1998, Dimon has carved for himself
something of a role as a Wall Street savior.

Dimon joined JPMorgan in 2004 after selling his Bank One Corp to the
bank for $56.9 billion, and became chief executive at the end of 2005.

Some historians see parallels between him and the legendary financier
John Pierpont Morgan, who ran J.P. Morgan & Co and was credited
with intervening to end a banking panic in 1907.

JPMorgan has suffered less than many rivals from the credit crisis, but
has been hurt. It said on Thursday it has already taken $3 billion to
$3.5 billion of write-downs this quarter on mortgages and leveraged
loans.

Washington Mutual has a major presence in California and Florida, two
of the states hardest hit by the housing crisis. It also has a big
presence in the New York City area. The thrift lost $6.3 billion in the
nine months ended June 30.

"It is surprising that it has hung on for as long as it has," said Nancy Bush, an analyst at NAB Research LLC." Reuters.com