WaMu Is Seized, Sold Off to J.P. Morgan, In Largest Failure in U.S. Banking History:
WaMu has suffered huge losses but still boasts a strong deposit base and a network of 2,239 branches that bigger banks would have paid dearly for when times were good. In March, with the credit crisis in full bloom, J.P. Morgan offered to acquire WaMu but was spurned in favor of a $7 billion infusion led by the private-equity firm TPG, considered one of the savviest buyout firms. TPG, led by investor David Bonderman, said it will lose $1.35 billion, wiping out its investment.This is the second time that J.P. Morgan, the second-largest U.S. bank in stock-market value, has been a buyer of last resort. In March, the New York company agreed to purchase Bear Stearns Cos., getting a $29 billion backstop from the federal government.
FDIC Chairman Sheila Bair said that WaMu’s downward spiral “could have posed significant challenges without a ready buyer.” Referring to J.P. Morgan’s willingness to buy WaMu and absorb its shaky loans amid continuing debate over the $700 billion bailout package, she added: “Some are coming to Washington for help, others are coming to Washington to help.”
Oh, yes, J.P. Morgan is clearly “coming to Washington to help.”
Here’s how quickly a run on the bank can kill it:
Starting Sept. 15, the day that Lehman filed for bankruptcy protection, WaMu’s customers began heading for the exits. Over the next 10 days, they yanked a total of $16.7 billion in deposits, according to the Office of Thrift Supervision. That was about 9% of the thrift’s deposits as of June 30.
Note that it only took a 9% drop before regulators rushed in:
Normally, when the FDIC and another regulatory agency are preparing to take over a bank, the FDIC will solicit bids for the bank on Tuesday or Wednesday and then seize it on Friday evening, after the bank’s branches have closed for the weekend. Sometimes the FDIC will even wait another week to step in. Every bank to fail this year has been shut down on a Friday. The FDIC steps in on Fridays to ensure a smooth transition so that customers hardly notice the handover.In WaMu’s case, the FDIC set a Wednesday evening deadline for interested parties to submit their offers for various parts of WaMu. Twenty-four hours later, they were already preparing to seize the bank. Earlier this month, Treasury Secretary Henry Paulson made it clear to WaMu that the company should have accepted the takeover deal J.P. Morgan had offered earlier this year, according to a person close to WaMu.