Regulators Seize WaMu; Chase to Buy Assets

In what is being called the largest single bank failure in U.S. history, Seattle-based thrift Washington Mutual was shut down late Thursday by the Office of Thrift Supervision (OTS) and placed into receivership with the Federal Deposit Insurance Corp. (FDIC). JPMorgan Chase will buy the banking assets of WaMu for $1.9 billion.

Regulators stressed Thursday that Washington Mutual would be open for business on Friday. OTS said that a major factor in the failure of the bank was a run on deposits by customers. Since Sept. 15, WaMu had lost $16.7 billion in deposits. The bank, the largest savings and loan institution in the country, had $188.3 billion in total deposits at the end of the second quarter.

The collapse is by far the largest bank failure in history. OTS said that WaMu had $307 billion in assets. The previous record for bank collapse was set in 1984 when Continental Illinois failed while holding assets of $40 billion.

JPMorgan Chase won a bidding process conducted by the FDIC Thursday to acquire the banking assets of WaMu. Chase will pay the FDIC $1.9 billion to acquire the banking assets only of WaMu. This includes total assets of $307 billion -- of which $188 billion are customer deposits – 2,239 retail branches in 15 states, more than 43,000 employees and WaMu’s entire consumer loan portfolio.

Chase said in a press release that it will convert Washington Mutual’s consumer banking, home lending and credit card businesses to the Chase brand and technology platforms over the next two years.

When the dust settles, JPMorgan Chase will be the largest depository institution in the U.S., with over $900 billion of customer deposits. Its branch network will be the second-largest in the U.S. behind Bank of America, reaching 42 percent of the country’s population. Chase will have 5,400 branches in 23 states.

The total cost to Chase will be much higher than the reported $1.9 billion paid to the FDIC. The company said that once it takes possession of the consumer loan portfolio, it expects to write-down some $31 billion in loans. As a result, it will raise $8 billion in additional capital to bolster its liquidity.

Washington Mutual had been actively seeking a buyer for at least the past week as it share price deteriorated under the weight of its subprime mortgage investments. Ratings agency Standard & Poors downgraded WaMu early Thursday and rival rater Moody's said Thursday afternoon that it had placed 31 notes -- totalling $9 billion -- from WaMu's credit card trust under review for possible downgrade.