[DEBATE] : Bank Run in US.... WaMu

[Riaz K Tayob]

 BBC NEWS
Regulator sells Washington Mutual

Washington Mutual (WaMu) has become the biggest US bank to fail, as 
regulators were forced to take control and sell off the mortgage lender.

The Office of Thrift Supervision (OTS) sold its assets to JPMorgan Chase 
for $1.9bn (£1bn) after $16.7bn of deposits had been withdrawn in 10 days.

Regulators were quick to reassure customers that WaMu would be trading 
as usual despite the change of ownership.

WaMu was hit by mortgage defaults the collapse of the US housing market.

"For bank customers, it will be a seamless transition," said Stella 
Blair, chairman of the Federal Deposit Insurance Corporation (FDIC).

"Bank customers should expect business as usual come Friday morning."


   
WASHINGTON MUTUAL
2,239 branches in 15 states
43,198 employees on 30 June
Set up in 1889

"With insufficient liquidity to meet its obligations, WaMu was in an 
unsafe and unsound condition to transact business," the OTS said.

The bank had about $307bn of assets but only about $188bn of deposits, 
which meant it had to raise funding on money markets, which has become 
increasingly expensive.

Additional funding

It raised an extra $7bn of capital from a consortium led by the private 
equity group TPG in April.

If WaMu had just failed then depositors would have been compensated by 
the FDIC, so the sale to JPMorgan may be a positive step.

"There was some concern that if a bank the size of WaMu failed the FDIC 
fund would not be adequate to meet the task and would require additional 
funding from the government," said David Resler, chief economist at 
Nomura Securities.

Instead, the responsibility for the deposits has been transferred to 
JPMorgan Chase.

"That means the FDIC fund is intact and can be used for other closures 
if necessary," Mr Resler added.

Sub-prime lending

It is less than three weeks since WaMu dismissed its chief executive 
Kerry Killinger, who it blamed for the bank's expansion into sub-prime 
and other comparatively risky lending.

Sub-prime mortgages are offered to borrowers with inferior credit 
records or unpredictable incomes.

WaMu is JPMorgan's second big fire-sale acquisition since the start of 
the credit crunch. It bought Bear Stearns in March.

The WaMu deal means it is now the second-biggest US bank, with 5,410 
branches in 23 states.

"This deal makes excellent strategic sense for our company and our 
shareholders," said Jamie Dimon, chairman of JPMorgan Chase.

Before WaMu's closure was announced, it had a stock market value of $2.9bn.

In February this year, WaMu unveiled a new Whoo Hoo! advertising 
campaign, aiming to "capture the essence of what it feels like to bank 
at WaMu".

Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/7637026.stm

Published: 2008/09/26 12:36:03 GMT

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