26 Sep, 2008, 1116 hrs IST,
NEW YORK/WASHINGTON: Washington Mutual Inc was closed by the U.S. government in by far the largest failure of a US bank, and its banking assets were sold to JPMorgan Chase & Co for $1.9 billion.
The rescue marks a historic step to clean up a U.S. financial system littered with toxic mortgage debt.
Washington Mutual, the largest U.S. savings and loan, was closed by the federal Office of Thrift Supervision, and the Federal Deposit Insurance Corp was named receiver. Customers should expect business as usual on Friday, the FDIC said.
The bailout came after the thrift suffered deposit outflows of $16.7 billion since September 15, the OTS said.
"With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business," the OTS said.
Seattle-based Washington Mutual has about $307 billion of assets and $188 billion of deposits, regulators said. The nation's largest previous banking failure was Continental Illinois National Bank & Trust, which had $40 billion of assets when it collapsed in 1984.
The rescue marks a historic step to clean up a U.S. financial system littered with toxic mortgage debt.
Washington Mutual, the largest U.S. savings and loan, was closed by the federal Office of Thrift Supervision, and the Federal Deposit Insurance Corp was named receiver. Customers should expect business as usual on Friday, the FDIC said.
The bailout came after the thrift suffered deposit outflows of $16.7 billion since September 15, the OTS said.
"With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business," the OTS said.
Seattle-based Washington Mutual has about $307 billion of assets and $188 billion of deposits, regulators said. The nation's largest previous banking failure was Continental Illinois National Bank & Trust, which had $40 billion of assets when it collapsed in 1984.
The transaction gives JPMorgan roughly 5,400 branches, and fulfills JPMorgan Chief Executive Jamie Dimon's long-held goal of becoming a retail bank force in the western United States.
It comes four months after JPMorgan acquired the failing investment bank Bear Stearns Cos at a fire-sale price.
Shares of Washington Mutual plunged 80 cents to 89 cents in after-hours trading after falling 57 cents to $1.69 in regular trading on the New York Stock Exchange.
NEGOTIATIONS
A transaction would follow more than a week of negotiations over the fate of Seattle-based Washington Mutual, which attracted interest from several large North American and European banks, as well as private equity firms, despite soaring mortgage losses and evaporating investor confidence.
It also appears to be a costly defeat for David Bonderman and his private equity firm TPG Inc, which in April invested $2 billion in Washington Mutual as part of a $7 billion capital-raising by the thrift. TPG was not available for comment.
Washington Mutual's $227 billion book of real estate loans, more than half of which comes from home equity loans, and adjustable-rate and subprime mortgages now considered risky, ensconced the thrift on the critical list of financial institutions needing help, analysts said.
It comes four months after JPMorgan acquired the failing investment bank Bear Stearns Cos at a fire-sale price.
Shares of Washington Mutual plunged 80 cents to 89 cents in after-hours trading after falling 57 cents to $1.69 in regular trading on the New York Stock Exchange.
NEGOTIATIONS
A transaction would follow more than a week of negotiations over the fate of Seattle-based Washington Mutual, which attracted interest from several large North American and European banks, as well as private equity firms, despite soaring mortgage losses and evaporating investor confidence.
It also appears to be a costly defeat for David Bonderman and his private equity firm TPG Inc, which in April invested $2 billion in Washington Mutual as part of a $7 billion capital-raising by the thrift. TPG was not available for comment.
Washington Mutual's $227 billion book of real estate loans, more than half of which comes from home equity loans, and adjustable-rate and subprime mortgages now considered risky, ensconced the thrift on the critical list of financial institutions needing help, analysts said.
Its fate appeared to grow more precarious after problems with mortgage-related debt led to last week's bankruptcy filing by Lehman Brothers Holdings Inc and the near demise of insurance company American International Group Inc.
The addition of Washington Mutual would make JPMorgan close in size to Citigroup Inc, now the largest U.S. bank by assets. It would trail Bank of America Corp assuming that bank, which now ranks second in assets, completes its planned purchase of Merrill Lynch & Co.
Once something of a golden child at Citigroup Inc before Sanford "Sandy" Weill engineered his ouster in 1998, Dimon has been carving for himself something of a role as a Wall Street savior.
Some historians see parallels with the legendary financier John Pierpont Morgan, who ran J.P. Morgan & Co and was credited with intervening to end a banking panic in 1907.
Bank of America Chief Executive Kenneth Lewis has also been credited with helping steady Wall Street, or at least reduce damage, with his acquisitions this year of Merrill Lynch and Countrywide Financial Corp, the troubled mortgage lender that was once the nation's largest.
HARD-HIT
It was not immediately clear how much of Washington Mutual's loans might have been eligible for the bailout. The thrift has a significant presence in California and Florida, two of the states hardest hit by the nation's housing crisis. It also has a significant presence in the New York City area.
The thrift had long been expected to sell itself after amassing $6.3 billion of losses in the previous three quarters. It had also projected $19 billion of mortgage losses through 2011, but many analysts said that was too low.
Washington Mutual earlier this month ousted Chief Executive Kerry Killinger, who spearheaded the thrift's growth as well as its expansion in subprime and other risky mortgages, and replaced him with Alan Fishman, the former chief executive of Brooklyn, New York's Independence Community Bank Corp.
The addition of Washington Mutual would make JPMorgan close in size to Citigroup Inc, now the largest U.S. bank by assets. It would trail Bank of America Corp assuming that bank, which now ranks second in assets, completes its planned purchase of Merrill Lynch & Co.
Once something of a golden child at Citigroup Inc before Sanford "Sandy" Weill engineered his ouster in 1998, Dimon has been carving for himself something of a role as a Wall Street savior.
Some historians see parallels with the legendary financier John Pierpont Morgan, who ran J.P. Morgan & Co and was credited with intervening to end a banking panic in 1907.
Bank of America Chief Executive Kenneth Lewis has also been credited with helping steady Wall Street, or at least reduce damage, with his acquisitions this year of Merrill Lynch and Countrywide Financial Corp, the troubled mortgage lender that was once the nation's largest.
HARD-HIT
It was not immediately clear how much of Washington Mutual's loans might have been eligible for the bailout. The thrift has a significant presence in California and Florida, two of the states hardest hit by the nation's housing crisis. It also has a significant presence in the New York City area.
The thrift had long been expected to sell itself after amassing $6.3 billion of losses in the previous three quarters. It had also projected $19 billion of mortgage losses through 2011, but many analysts said that was too low.
Washington Mutual earlier this month ousted Chief Executive Kerry Killinger, who spearheaded the thrift's growth as well as its expansion in subprime and other risky mortgages, and replaced him with Alan Fishman, the former chief executive of Brooklyn, New York's Independence Community Bank Corp.
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