This represents the largest bank failure in U.S. history. Over the previous 9 days WaMu customers withdrew $16.7 billion which caused the bank to fail. Most of the deposits withdrawn were over the FDIC limit of $100,000.
Washington Mutual (WaMu) is the the 13th U.S. bank to fail this year and the ninth to fail since July. WaMu had combined assets of $307 billion and total deposits of $188 billion.
WaMu collapsed as its credit rated plummeted to junk and its stock price tumbled. WaMU stocks declined 95% during the past year. With losses in the amount of $19 billion based upon bad mortgage loans, Washington Mutual puts itself up for sale last week. On September 8th, Kerry Killinger, the long time CEO was replaced with Alan Fishman. Fishman was given a $7.5 million signing bonus and a $1 million salary - not bad for working just a few weeks!
After a few days of bidding on WaMU, JP Morgan Chase & Co. emerged as the buyer with the best offer for a price of $1.9 billion. JP Morgan will not acquire WaMu's liabilities as a result of the sale. JP Morgan is in a very good position as a result of the sale by becoming the biggest U.S. bank, as measured by deposits.
The FDIC brought about the purchase of WaMu by JP Morgan and fortunately did not have to bare the costs of the takeover of the bank's assets. The FDIC noted that this was a major victory.
The failure of WaMU is the latest of what is becoming a long line of failures and bailouts experienced of late with the likes of Lehman Brothers, IndyMac, Bear Stearns (also absorbed by JP Morgan Chase), American International Group (AIG), Merrill Lynch, Fannie Mae, and Freddie Mac.
-Written by Ross Gill
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