25 September 2008

WaMu Seized By FDIC and Sold To JP Morgan

Washington Mutual, known for its aggressively pro-consumer terms in its retail banking and an excessively large mortgage portfolio, has been on a death watch for a long time. Today appears to have been the day. It has apparently been seized by the FDIC and acquired by JP Morgan Chase in a transaction that is the banking equivalent of a pre-packaged Chapter 11 filing that wipes out Washington Mutual's investors.

Washington Mutual is probably the largest banking institution to fail in recent memory, perhaps ever.

UPDATE (9/25/08 later in the day):

It is the largest bank failure in American history.

Shareholders and some bondholders will be wiped out. WaMu deposits are guaranteed by the Federal Deposit Insurance Corporation up to the $100,000 limit for each account. WaMu customers are unlikely to be affected.

It does not appear that the FDIC will have to make any meaningful payouts in this case. While WaMu was insolvent, it does not appear to have insured deposits greater than the sum of the buyout price and its remaining assets.

2 comments:

John said...

I thought Lehman Brothers was the biggest bank failure in history? They're $613 billion in debt and $639 billion in assets appears to be a bit more than WaMu's $307 billion in assets. I'm confused. :)

Cheers,
John

Andrew Oh-Willeke said...

The FDIC is counting commercial banks only. Lehman Brothers was an investment bank.