CAPITOL WAMU-VE
JPMorgan Chase boss Jamie Dimon scored again last night, buying beleaguered thrift Washington Mutual for $1.9 billion in a government-orchestrated takeover of what is the largest banking failure in US history.
The takeover will completely wipe out WaMu’s shareholders and bondholders, including nearly $1.35 billion held by private-equity giant TPG Capital.
The deal was brokered by the Federal Deposit Insurance Corp. in an effort to avoid saddling taxpayers with WaMu’s toxic mortgage assets and having to insure deposits should the bank have failed without a buyer.
FDIC Chairman Sheila Bair said last night that all deposits will be transferred to JPMorgan and that for WaMu’s customers it will be “business as usual come Friday morning.”
Federal regulators said WaMu has suffered an exodus of $16.7 billion in deposits since Sept. 15, leaving the Seattle thrift “with insufficient liquidity to meet its obligations.” As a result, WaMu was in “an unsafe and unsound condition to transact business,” according to the Office of Thrift Supervision.
Dimon has long coveted WaMu’s valuable retail banking franchise, which includes $135 billion in deposits and over 2,300 branches. With the takeover, JPMorgan can essentially pick up those assets relatively cheaply and become the nation’s largest retail bank, with 5,400 retail outlets and $900 billion in deposits.
As part of the deal, JPMorgan will absorb $176 billion of WaMu’s outstanding mortgage portfolio. It will take a $31 billion write-down on those assets and raise $8 billion in capital to offset those losses, JPMorgan said last night.
Sources familiar with the situation yesterday said that the FDIC had all but taken over WaMu’s auction process – accepting bids from several suitors including Citigroup, JPMorgan and Wells Fargo.
WaMu CEO Alan Fishman and Goldman Sachs had been conducting their own auction process in the hopes of either salvaging some value for shareholders or raising enough additional capital to continue as an independent company.
But people close to WaMu believe that effort had been stymied by the government’s decision to run a separate auction.
Fishman and other officials at WaMu were not even aware of the JPMorgan takeover until late yesterday, sources said.
People close to WaMu said the thrift had received interest from private equity firms as well as Texas billionaire Gerald J. Ford and were also working with their current shareholders yesterday to raise additional funds.
As of two weeks ago, WaMu said it had $50 billion of available liquidity, but shares of the company continued to get hammered. The stock ended yesterday down 25 percent to $1.69 even as the overall market was up.