WaMu: Another One Bites the Dust!

[3113]

Yikes! They're dropping like flies!

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, which stretch from New York 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.

Rest of the story here.

 

[neonlyte]

It was only a matter of time.

Republicans have rejected the Paulson Plan - expect more bank failures to follow.

European Central Bank is taking steps to insulate European Banks from the potential melt down of USA banking. It is thought likely they may mandate a 100% write-off of USA subprime loans held by European banks ($350bn) whilst simultaneous providing a similar amount in equity to the banks in return for a stakehold. This will have the effect of recapitalising the banking system, fucking with every execs bonus plan, and reminding shareholders, by diluting their share value, that there is no such thing as a free lunch. The plan will be bolstered by new regulations probably aimed at improving the capital/lending ratios. That will restrict bank lending for a short period enabling inflation to be brought under control and interest rates to be slowly lowered. Note, this does not include the UK. They shrewdly chose not to be part of the Euro and will find themselves hostage to fortune from both the USA and the Eurozone.

 

[dr_mabeuse]

I don't understand. If a bank is going under, why would someone buy it? Wouldn't it just drag them down?

 

[neonlyte]

I don't understand. If a bank is going under, why would someone buy it? Wouldn't it just drag them down?

They bought WaMu's deposits of $188bn for $1.9bn and not its liabilities of $307bn.
The thinking appears to be that if the bank had gone bust, Federal Deposit Insurance Corporation would have needed bailing out to meet depositors claims. Depositors withdrew $16.7bn across the previous 10 days, the bank couldn't sustain the withdrawals. I imagine most of the liabilities are in written-down subprime loans, it is unlikely anyone will suffer too much other than those investors who stumped up $7bn a few weeks ago to underpin WaMu.

A billion here, a billion there... pretty soon you're talking real money.

 

[JAMESBJOHNSON]

Wachovia is not looking good, either.

 

[Liar]

And the blogosphere is flooded with "WaMu goes Shamu" quips. People have no standards.

 

[Stella_Omega]

And the blogosphere is flooded with "WaMu goes Shamu" quips. People have no standards.

Standards are an up-economy luxury.

 

[trysail]

They bought WaMu's deposits of $188bn for $1.9bn and not its liabilities of $307bn.
The thinking appears to be that if the bank had gone bust, Federal Deposit Insurance Corporation would have needed bailing out to meet depositors claims. Depositors withdrew $16.7bn across the previous 10 days, the bank couldn't sustain the withdrawals. I imagine most of the liabilities are in written-down subprime loans, it is unlikely anyone will suffer too much other than those investors who stumped up $7bn a few weeks ago to underpin WaMu.

A billion here, a billion there... pretty soon you're talking real money.

Neon, while you may realize it, most people don't— so here's a little clarification— customer deposits are accounted for as liabilities on a bank's balance sheet. Loans extended by the bank are assets.

JPM "purchased" WAMU's deposits (i.e., a portion of WAMU's liabilities) from the OTS. My understanding is that JPM did not assume any other liabilities; hence WAMU's bondholders, preferred shareholders, other commercial creditors and shareholders are, ostensibly, "SOL."

It is not entirely clear to me whether JPM also purchased a portion of or all of WAMU's assets (i.e., WAMU's loan portfolio).

TPG [formerly David Bonderman's Texas Pacific Group] (one of the large buyers of WAMU's recent share offering) has already shrugged its shoulders and assigned a nil value to its WAMU holding with the comment that the WAMU holding represented an "insignificant percentage of the portfolio."

 

[neonlyte]

Useful note, Trysail.

Next up. UK bank Bradford & Bingley. Equity $2.25bn, Assets $72bn, Deposits $61bn. It'll be gone before next week is out following a 90% decline in share value.

 

[Belegon]

I don't understand. If a bank is going under, why would someone buy it? Wouldn't it just drag them down?

Neon hit a large part of it.

The answer is the deposits. The deposits are extremely valuable, and even more so in this environment.

Think of it from this perspective, Doc. Almost every single bank in the world loses money on checking accounts as a separate product. Regardless of fees, etc. Checking accounts lose money because of the cost associated with fraud, bounced checks, etc.

So why the fuck would a bank offer checking accounts?

Deposits. Deposits at zero interest, especially.

All the advertising that you see that is aimed at getting you to open checking accounts is aimed at getting you to open a product the bank will, in a vacumm, lose money on.

But the deposit base is the fuel for all of the profitable enterprises.

 

[Xelebes]

Useful note, Trysail.

Next up. UK bank Bradford & Bingley. Equity $2.25bn, Assets $72bn, Deposits $61bn. It'll be gone before next week is out following a 90% decline in share value.

After that, we're talking Wachovia.

 

[colddiesel]

I'm watching Fortis the Belgian/Dutch bank. Their shares have nose dived for 5 straight days and their CEO has issued a denial that they have liquidity problems. If he's telling the full story the numbers don't look too bad but I don't think the market likes the undigested ABN/Amro deal. Fear rules ?

If this goes pear shaped it will be the first outside USA/UK

 

[SlickTony]

After that, we're talking Wachovia.

I hope not, I used to work there and I've banked there since '96. Of course, it's not like I have to worry about my funds not being insured.

 

[neonlyte]

UK Bank Bradford & Bingley will be nationalised, the UK government has announced. Customer cash withdrawals today hastened its demise. Its mortgage business will be transfered to Northern Rock, nationalised earlier this year. Shareholders lose their investment.

Every single one of the de-mutualised UK mortgage providers who converted to banks over the last couple of decades has gone.