JPMorgan Chase jpm acquired the banking operations of Washington Mutual wm, the nation's largest savings and loan, for $1.9 billion Thursday night in a deal brokered by the Federal Deposit Insurance Corp.
Seattle-based WaMu, which was founded in 1889, is the largest bank to fail by far in the country's history. Its $307 billion in assets eclipse the $40 billion of Continental Illinois National Bank, which failed in 1984, and the $32 billion of IndyMac, which the government seized in July.
"For all depositors and other customers of Washington Mutual Bank, this is simply a combination of two banks," FDIC Chairwoman Sheila Bair said. "For bank customers, it will be a seamless transition. There will be no interruption in services, and bank customers should expect business as usual come Friday morning."
None of Washington Mutual's depositors, including those with uninsured deposits, will lose any money, Bair said Thursday night.
Washington Mutual's shares have plunged nearly 90% in the past year on concerns about its large holdings of subprime mortgages. Wednesday, credit-rating agency Standard & Poor's cut WaMu's credit rating and preferred-stock rating further into junk status, noting an increased likelihood that any sale of the thrift would only be done in piecemeal fashion.
JPMorgan said it will write down Washington Mutual's loan portfolio by about $31 billion. The deal won't include any assets or liabilities of the banks' parent holding company, or the holding company's non-bank subsidiaries, the company said in a statement.
Stephen Buser, retired finance professor at Ohio State University, said the deal allows JPMorgan to buy a major stake in a West Coast bank at a bargain price. But buying a troubled bank such as Washington Mutual also involves some risk, he says.
"It's kind of like buying a car after it's been in a car wreck," he says. "You get it cheap, but it has some damage."
The deal means the FDIC won't have to dip into its deposit insurance fund to pay off depositors. That's significant, because a Washington Mutual bailout would have placed severe strains on the fund. The FDIC's takeover of California-based mortgage giant IndyMac in July tipped the federal deposit insurance fund, now at around $45.2 billion, below the minimum target level set by Congress.
Frederick Cannon at market research firm Keefe, Bruyette & Woods said the surprisingly low price paid for WaMu could send ripples through shares of other banks, as investors worry that maybe the value of the shares are even lower than believed.
"What they're (JPMorgan) paying suggests the loans on the balance sheets of other banks may be less than what their stock prices reflect," he says.
Contributing: Barbara Hagenbaugh, Matt Krantz; the Associated Press