Government Seizes WaMu, Sells to JPMorgan

Washington Mutual, the largest savings and loan, was seized by federal regulators on Thursday night, in what is by far the largest bank failure in American history. Regulators simultaneously brokered an emergency sale of virtually all of Washington Mutual to JP Morgan Chase for $1.9 billion, according to The New York Times.

The transaction was completed as lawmakers were unable to reach an agreement over the passage of a $700 billion bailout fund designed to help the ailing banks.

Customers of WaMu, based in Seattle, are unlikely to be affected, although shareholders and some bondholders will be wiped out. WaMu account holders are guaranteed by the Federal Deposit Insurance Corporation up to $100,000, and any additional deposits will be backed by JPMorgan Chase.

JPMorgan will absorb at least $31 billion in losses that would normally have fallen to the F.D.I.C., according to NYT.

JPMorgan acquired Bear Stearns only six months ago in a similar expedited deal brokered by the government. JPMorgan’s expanded franchise will rival only Bank of America. JPMorgan will also take on WaMu’s large portfolio of troubled assets, and plans to shut down at least 10 percent of the combined company’s 5,400 branches in markets like New York and Chicago, where they compete. The bank also plans to raise an additional $8 billion by issuing common stock on Friday to pay for the deal, according to NYT.

“This institution was a big question mark about the health of the deposit fund,” Sheila C. Bair, the chairperson of the F.D.I.C., said on a conference call with NYT on Thursday. “It was unique in its size and exposure to higher risk mortgages and the distressed housing market. This is the big one that everybody was worried about.” She said that the bank’s rapidly deteriorating condition prompted regulators to seize it Thursday, and not on a Friday as is typical for bank closures.