Washington Mutual closed, JP Morgan acquires operations for $1.9 billion

[Naveed Yaseen]

WASHINGTON (September 27 2008): The US government Thursday closed struggling Washington Mutual, one of the country's largest savings and loans banks, allowing J.P. Morgan Chase to buy its operations for 1.9 billion dollars. In the deal announced by the US Federal Deposit Insurance Agency (FDIC) late Thursday, banking giant J.P. Morgan Chase acquired the deposits, assets and some liabilities of the bank based in Seattle, Washington.

Washington Mutual, incorporated in 1889 in the west coast city, had been seen as heavily exposed to the mortgage crisis sweeping the country, and its shares had dropped some 85 percent this year.

Observers have speculated for months that it would be the next victim of the economic firestorm which has engulfed financial institutions across the country, sparking global turmoil. The news came as US lawmakers were trying to hammer out an unprecedented 700-billion dollar rescue plan, which if agreed would be the largest Wall Street bailout since the Great Depression of the 1930s.

The purchase of Washington Mutual, known as WaMu, which had about 188 billion dollars in deposits, creates the largest US depository institution with more than 900 billion dollars in customer deposits, J.P. Morgan Chase said. "This deal makes excellent strategic sense for our company and our shareholders," said J.P. Morgan Chase chairman Jamie Dimon in a statement.

"Our people have worked hard to build a strong franchise and balance sheet - making this compelling transaction possible." Earlier this year, the banking giant also took over Bear Stearns, which had been one of the most high-profile victims of the US subprime property crisis.

In May, Bear Stearns shareholders approved a deal selling the former 85-year-old investment giant for a bargain-basement price of one billion dollars, concluding a deal engineered in March by the Federal Reserve. FDIC chairman Stella Blair offered assurances that all customers of Washington Mutual, which billed itself as the "bank for everyday people, focusing on middle-market consumers and small businesses," would be protected.

"For all depositors and other customers of Washington Mutual Bank, this is simply a combination of two banks," said Blair. "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."

Before Thursday's announcement, Washington Mutual was still worth some 2.9 billion dollars on the stock market. But according to recent estimates by the ratings agency Standard & Poor's it owed some 14.4 billion dollars in debt. J.P. Morgan Chase said the deal would add some 5,400 agencies to its chain, and specifically boost its presence on the Pacific coast.

The deal would add some 0.50 cents to its share values in 2009, J.P. Morgan Chase added, saying it expected to incur pretax merger costs of some 1.5 billion dollars. Earlier this month, Standard & Poor's and Fitch lowered their ratings of WaMu's holding company, after Moody's Investors Service downgraded its debt to non-investment or "junk" status, complicating plans to raise fresh capital.

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