JP Morgan to Acquire Washington Mutual Assets

Update: September 26, 2008

It looks like the Fed did take over WaMu last night and then quickly structure a deal with JP Morgan. The terms of the deal are not becoming clear. JP Morgan bought all of WaMu's deposits, branches, and other operations for $1.9 billion and will assume their loan portfolio. Analysts estimate the portfolio has up to $31 billion in bad loans, so in essence, JP Morgan paid $33 billion.

We've also learned about the last days of WaMu. Since September 15, the day Lehman went under, WaMu's customers began pulling money out of the bank. WaMu lost $16 billion, or 9% of its deposits since then. Once a run like that starts, the OTS takes notice and if it continues, they move in.

It looks like the hammer finally fell. The Wall Street Journal and Bloomberg are reporting that the Fed has brokered a deal for JP Morgan to take over the bulk of WaMu's deposits, branches, and other operations.

The story is slightly different from each source. The WSJ reports that JP Morgan will be acquiring the assets, implying it will be a direct acquisition while Bloomberg states that the company will first be taken over by regulators and then sold to JP Morgan and other interested parties. The distinction may be moot for BestCashCow purposes, since it appears that the bulk of deposits are going with JP Morgan.

The assumption is that if you are a WaMu customer, your deposits will, at some point be transferred over to Chase, JP Morgan's banking arm. We can expect that the rates on accounts will come down. WaMu is currently offering a 4% APY savings account, the highest savings rate in the country, while the highest rate I could find on chase.com was 1.50% APY on a money market account with a balance over $10,000.

While it's unclear how the deal will be structured, it appears that JP Morgan's acquistion will eliminate the need for any payments out of the FDIC insurance fund. That's a good thing, because analysts had expected a WaMu failure, if it occurred, to be the the biggest bank failure in history and require at least $30 billion in FDIC funds. For WaMu deposit holders, this will appear like a bank acquisition.

What happens to the bad morgages on WaMu's books? I'm sure the FDIC has been shopping them around but it's clear there is no interest at this time. Does the government purchase them now from its soon-to-be kitty? Would it even want to since the originating institution is gone?

I imagine some daring company will buy the mortgages up for pennies on the dollar and then reap a nice profit when the market stabilizes at some future point.

It's sad to see WaMu go. They had competitive rates, a decent account opening process, and good customer service. I hope the majority of their employees find a home at JP Morgan Chase.