The quick and dirty: "In what is by far the largest bank failure in U.S. history, federal regulators seized Washington Mutual Inc. and struck a deal to sell the bulk of its operations to J.P. Morgan Chase & Co."
The shareholders and creditors of WaMu are the big losers. WaMu customers appear to be unaffected. The big winner is JP Morgan (see WSJ story linked above):
The deal will expand J.P. Morgan's footprint westward and into the South. Most importantly, it will give J.P. Morgan an instant presence in two states where it is now virtually non-existent: California and Florida. Although both states have been battered by the housing market collapse, they still offer significant potential for J.P. Morgan, which can pitch a slew of financial services that weren't big business for WaMu, such as wealth management and commercial banking. WaMu has nearly 700 branches in California and operates more than 250 branches in Florida.
The crazy thing is that this story looks ho hum beside the bailout negotiations.
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1. Posted by Christine on September 26, 2008 @ 7:29 | Permalink
Does this mean I'll stop getting WaMu phishing spam? Or will I just get JPM phishing spam now?
2. Posted by fedgovernor on September 26, 2008 @ 9:34 | Permalink
WaMu's demise is a good example of how, with very little public money, the credit crisis can be solved.
JPMorgan will write down $31 billion in assets, paid only $1.2 billion for $300 billion in assets, and not one branch closed down.
The shareholders, who after all caused the problem to begin with, paid the price.
That's right: the shareholders, who elected the board, who hired the management that put 25% of their capital in securities, paid the price for that stupid move.
As it should be in a free market.
3. Posted by fedgovernor on September 26, 2008 @ 9:37 | Permalink
I hereby offer to purchase the assets of any failing bank, on the exact same terms that JP Morgan just got from the Fed.
If you have a bank with $300 billion in assets, I will buy that bank for $1 billion and promise not to close any bank branches and not to ask Uncle Sam for any handouts.
I just need $1 billion in 100% loan guarantees a loan which I'll pay back in 30 days.
Credit crisis solved.
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