Boy, by the time this is all done, what won’t JP Morgan own (well, besides Countrywide)? FDIC is winding up WaMu.
The bank had been struggling to find a resolution for some time, and an FDIC takeover would have strained the agency’s resources. But one has to why JP Morgan took this on at such a late hour.
From CNBC (hat tip reader Dwight):
JPMorgan Chase will acquire the deposits of Washington Mutual, CNBC has learned. The deal is expected to be announced during a Thursday night conference call at 9:15 p.m. ET. This deal will mark the end of independence for what once was the largest U.S. thrift.
Federal regulators have been heavily involved in putting together the transaction, which comes as WaMu is besieged by a huge number of bad mortgage loans on its books.
The exact details of the deal aren’t known as yet, but JPMorgan is expected to acquire WaMu’s deposits and branches, as well as other operations. The deal isn’t expected to expected to result in any hit to the bank-insurance fund….
WaMu came under further pressure to sell Wednesday when Standard & Poor’s slashed its credit rating deep into “junk” territory. The thrift replaced its chief executive this month after suffering losses totaling $6.3 billion over the previous three quarters….
Complicating the sale process is what to do with the thrift’s $227 billion book of real estate loans, more than half of which consists of home equity loans, option adjustable-rate mortgages, and subprime mortgages.
It was not immediately clear how much of WaMu’s troubled loans might be eligible for Washington’s $700 billion financial industry bailout program.
WaMu has a significant presence in California and Florida, two of the states hardest hit by the nation’s housing crisis. But its 2,239-branch network could appeal to many lenders looking to expand in retail banking, especially in the western United States and the New York City area.
WaMu ended August with $143 billion in retail deposits — roughly triple the size of the entire Federal Deposit Insurance Corp fund that backs customer deposits. It has also said it expects to end the quarter with a “well-capitalized” status well in excess of federal minimums.
Will update when the FDIC press release comes out.
Update 9:30 PM: From the FDIC:
JPMorgan Chase acquired the banking operations of Washington Mutual Bank in a transaction facilitated by the Federal Deposit Insurance Corporation. All depositors are fully protected and there will be no cost to the Deposit Insurance Fund….
JPMorgan Chase acquired the assets, assumed the qualified financial contracts and made a payment of $1.9 billion. Claims by equity, subordinated and senior debt holders were not acquired.
“WaMu’s balance sheet and the payment paid by JPMorgan Chase allowed a transaction in which neither the uninsured depositors nor the insurance fund absorbed any losses,” Bair said.
Washington Mutual Bank also has a subsidiary, Washington Mutual FSB, Park City, Utah. They have combined assets of $307 billion and total deposits of $188 billion.
So JP Morgan got to strip the assets for a mere $1.9 billion? That sounds like one hell of a deal.
Update Friday 12;25 AM: Sorry for the sloppy use of language above. Readers correctly jumped on me for saying that the deposits were “assets” when they sit on the liability side of the ledger. From a strategic standpoint, retail customers (and the core product is their deposits) are viewed as assets (as in something that has value and is worth paying for; indeed, when the FDIC liquidates banks, the deposits are usually sold), and normally a large deposit base is considered extremely valuable. However WaMu was paying top of the market for its CDs. so its average cost of funds on deposits is almost certainly no bargain.
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No Bank Failur Friday then.
Or maybe not.
Just a couple of small one.
Don’t want to break the FEDIC budget now do we.
Re: JPMorgan Chase will acquire the deposits
What deposits? I thought all they had was a few hundred billion in debt
Fannie Ramping Up Purchases of Bad Loans
Plus their junk paper.
From $36 a share to zero. This is what happens when banks leverage deposits and lend on silly terms. So… when does JPM trip the antitrust burglar alarm?
I wouldn’t be surprised if there was a guvmint backstop in this deal.
Shawn H said…
From NYT
“In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers.”
WELL EXCUSE MEEEEEEEE
Did I miss somthing from the last two years?
If its $700 now what will it be in five years time?
This is insane.
8:03 PM Megafund TPG Capital, which invested $7 billion in Washington Mutual (WM) in April, stands to lose the $2 billion that its stock was still worth until recently. [Seeking Alpha]
When will Wachovia fold… and BoA cannot be in a good situation with the bad assets of Countrywide and ML?
Sorry they JPM is on the can not short list no new account from me.
Too weak to fail (can’t short JPM)
The PP passes.
USA buys WuMu junk paper.
JPM ends up with a bargain.
Solves my problem of the day.
Next?
http://www.fdic.gov/news/news/press/2008/pr08085.html
Help me out here…
How does the FDIC NOT get hit on this? They are stuck with the toxic loans, right? Clearly the value of the deposit base and retail branches is less than the future losses on the toxic waste or the FDIC wouldn’t be shutting them down.
that’s the good bank. wait till they sell the bad bank.
Think of it as a JPM bailout of the government. Take over deposits (which were guaranteed by FDIC), keep some branches open, take up assets, and let the shareholder and debtholders of WAMU take the hit. Writefown the loan portfolio by US$31b and pay 1.9b. Total US$32b for the third largest banking network in the US and a ton of deposits. Watch out for the same in CFC.
JPM = national champion. THe strategy is clear fortress banks BAC, JPM, WFC. Everyone else is cannon fodder
Jamie Dimon is very close to Dems. He is logical maybe only choice for Treas Sec in Obama regime.
Here’s what seems to have gone down. JPM’s presentation says they are acquiring the assets at fair value. So…it appears the regulators forced the bank to revalue its portfolio today to JPM’s taste, whereupon the bank was immediately declared insolvent. Cute trick, that couldn’t be done with Bear, because the bankruptcy laws differ of course from the insolvency laws for thrifts and banks.
Yves — You are my favorite blogger, but JP Morgan acquired all the deposits, which are a huge part of WaMu’s liabilities. The deposit “base” be an asset, but the deposits clearly show up on the other side of the ledger. The $1.9B was on top of assuming all of the liabilities to the depositors. Not that this isn’t probably a great deal.
WAMU>JPM was via a seizure by the Feds. JPM gets branches, deposits and junk paper. This the biggest bank seizure in US history.
This is 1909 all over again…
JPM acquiring assets for pennies on the dollar with full Government backing. Jamie Dimon needs to be rass raped by a Patriot.
Couldn’t they wait until Friday??? Don’t worry JPM has a gov’t backstop let them rearrange the deck chairs in the meantime
How far are we from a complete nationalization of the banking and financial services industry. The US government has cornered the market on Home loans and life insurance already. The government has become its own largest employer and debtor. Kind of like a snake eating itself from the tail.
Time to get onto the streets. We are all paying for this (globally) and yet we have no control over the form of the bailout. Anger is not strong enough a word.
Global free markets without global governance or accountability inevitably results in what we are seeing. The failure of communism did not by default mean that free market capitalism triumphed.
For a big picture academic assessment on the possible scenarios that we are facing see the link below. The global scenarios sketched out have their origins origins in work done by the Tellus Institute and Stockholm Environment Institute.
http://www.gtinitiative.org/perspectives/taxonomy.html
Shawn, look at the actual date on the article you linked to (Fannie Ramping Up Purchases of Bad Loans). It’s an article from 1999. Post responsibly, man.
Yves, has anyone done a back-of-the-envelope on WaMu unsecured debt ? Or is the mortgage portfolio such an unknown that it can’t be figured ?
Acquire!
That was a shotgun wedding if there ever was one.
WaMu just bought without looking.
Personal Knowledge.
Ben Bernanke, a careful student of the Depression of the 1930s and other crises, had long been warning the secretary of the Treasury and others that a more comprehensive solution might be required…
I actually fell sorry for Bernake, he inherited the pile of crap from Greenspan. Conventional history states that the Depression was made worse by lack of liquidity, Bernarke can’t be accused of this error.
What interests me is that Ben has been telling Paulson for a while that a systemic solution is required for the problem. Why all the rush then? It seems Paulson was sitting there hoping everything was going to go away with “liquidity”. It seems he had plenty enough time to formulate a politically acceptable bailout formulation but chose not to. Instead fostering a politically unacceptable plan on congress while at the same time trying to ram the deal through. I have become more and more convinced that he is looking after his brother pigmen.
I don’t understand the anger over this. The alternative would have been WaMu collapsing and triggering a run on other banks; after which JPM would have swooped in and picked up the deposit base without the toxic so-called assets, which would have been left to take down the FDIC’s balance sheet.
This deal is, at least in its current form, a big win for the taxpayer, who would have otherwise been on the hook. The losses are being realized by the stockholders and bondholders, which is precisely where the losses should be. The market works, even if the FDIC has to play market maker.
Damn, Posted in the wrong thread.
Apologies.
Paulson’s net worth is someplace north of $700,000,000.00.
I just looked through JPM’s presentation.
1) Somehow even the senior bondholders are getting wiped out 100% in favor of uninsured depositors. The bonds for all financials will get killed tomorrow.
2) JPM really really wanted the branches.
3) They did take the junk, but with large markdowns.
4) The large markdowns undo everything Paulson is claiming to do with the $700bn plan – establish higher, less “fire sale” prices.
Holy catfish.
ah..the skids are greased beautifully. jamie’s got all this bad stuff and hank’ gunna have a blank check pretty soon to help him out.
wait till you see the snake oil deals JPM does with treasury to clean up their balance sheet. the new empire in the making.
and then hank and jamie switch jobs, rinse and repeat.
and then they can go duck hunting on the weekend instead of dealing with congress.
life is grand.
According to the times, Sweden guaranteed all bank deposits and creditors of the nation’s 114 banks. Bond holders are creditors, right? Sounds like WaMu bond holders are getting thrown under the bus. The bond market was looking over the precipice Thursday, so I think it should be an interesting day tomorrow.
Very interesting blog. The real story. I’m a european and have been reading this for a few days, picked it up from the FT’s alphaville.com
If JPM believe the government is going to soon be buying junk at above market prices, is that not a good reason to hoover up as much of that junk they can get their hands on at market prices? $Bn of quick profit at taxpayers expense. Should the government not be buying that junk instead now? ASAP. At the cheaper price.
WaMu? *Blammo* JippyMo! To the trough in cape-n-tights mode, with a wad o’ T-bills stuffed in place of a codpiece. Superman? Nah, Reynardine.
To Killinger: This is what happens when one decides to get big by borrowing short to lend long to the worst credit risks in the country; one gets ones face eaten off by zombies, while someone else then chisels _their_ name on the front of the grinning skull. And those cowboys at TPG, well the bottom is a (w)hole lot deeper than yah figured, iddn’t it? About 7B bill thicknesses deeper. Wave bye-bye to your dreams of swallowing WaMu: it swallowed _you_. —And this is the object lesson on why we need to SHUT DOWN the insolvent banks rather then letting private OR public capital pour itself out in their hopeless defense. Save the money for the banks which can be saved, and take down the rest. Pronto.
The Treasury’s real plan seems to be to fold the whole of the banking system into either JPM or GS—“Competition will be maintained”—which will be backstopped with all the free taxpayer money they require to guarantee their profitability. I’m waiting for the day we seize _those_ two pirate shops and chop ’em into saleable bits.
Deposits are *not* assets, they are liabilities. (The money that was deposited was an asset, but that money isn’t there any more. The account balance is the other side of the ledger.)
Seems like JPM somehow has here got all the assets and only some of the liabilities. (Deposits only, no debts.) This way the deal can be a good one even with large haircuts.
Are depositors really more senior than the most senior of bond holders? That’s not a good place for bond holders…
Ironically, this would mean that a highly indebted bank was a good place to be for a depositor. So what was all the trouble about Northern Rock then?
Watch out below in the CDS market.
However WaMu was paying top of the market for its CDs.
And I still wouldn’t move money to one of them from a MM fund — not enough of difference in return. These are tough times for savers.
Regarding (coming) bank failures, people should take a look at this post:
You Know the Saying, “Celebrities Always Die in Threes”? Banks Always Fail in Hundreds.
Looks to me like JPM used FDIC to confiscate all of WaMu’s assets, stripping the bondholders’ claim on those assets out.
This reminds me of this post: http://www.nakedcapitalism.com/2008/01/bank-of-americas-scheme-to-stiff.html
… in which Bank of America tried to rid itself of Countrywide’s liabilities.
JPM is doing the same but perversely is using FDIC to commit this fraudulent transfer. That way it all looks legit and we can all smile and pretend that an outright robbery hasn’t happened.
Hello
I am relatively new to following finan. news and I found this blog to be very enlightening.
Can anyone please explain to me, why and how JPM benefits from the markdown in the loan portfolio before (after?) buying it? according to jpm’s PR, “In conjunction with this acquisition, JPMorgan Chase will be marking down the acquired loan portfolio by approximately $31 billion,” that sounds like they are marking it down after they acquired it. i see comments above stating that fdic/jpm wrote it down before jpm acutally acquired it.
jpm is getting all those assets for only 1.9b; sure, the deposits and govt debts are liabilities but, the loan portfolio, whether the debtors pay those loans or not, those are still assets to jpm/wamu, why does JPM want to write them down by $31b? what benefits will they get? less reserve requirements?
thank you
newbie reader
I have been following this blog for quite some time now and I have found this blog to be very useful. Share market has become very volatile and no one predict the next turn it would take. So I think there is no point getting angry with a stock broker. It may have been the case that he made a genuine mistake.
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