Thursday, September 25, 2008

WaMu Goes Under

Washington Mutual is no more. According to multiple sources, federal regulators seized WaMu's assets late Thursday night, and immediately sold most of the nation's largest bank to JP Morgan Chase in a $1.9 billion deal. Usually bank shutdowns are conducted late in the afternoon or evening on a Friday, to give the FDIC time to go through the books and re-open for normal business on the following Monday.

The fed's Thursday night shutdown of the troubled bank was not unexpected however. On September 15 Standard & Poor's downgraded it's rating on WaMu to junk status, and depositors subsequently rushed to withdraw over $17.6 billion in assets from the troubled Seattle-based lender. Rumors were swirling through the industry that a takeover was coming, and FDIC spokesperson Sheila Bair confirms there were plans to seize WaMu's assets on Friday evening, September 26.

Bair said that rumors and media coverage of the leaked takeover news caused the earlier than expected seizure. "This was an eroding situation," confirmed Bair.

What's this mean to middle America? There's some actual good news in this bank failure story. Purchaser JP Morgan Chase agreed to make good on WaMu's debts, leaving the FDIC off the hook for covering lost deposits. In short, the US taxpayer doesn't owe anything extra because of the fed's shutdown.

The purchase temporarily makes JP Morgan Chase the nation's second-largest bank with deposits of $2.1 trillion and over 5400 branch banks in 23 US states. Once Bank of America completes it's purchase of the remains of investment bank Merrill Lynch, it will regain the position as the nation's biggest bank.

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