In what is by far the largest bank failure in U.S. history, federal regulators seized Washington Mutual Inc. and struck a deal to sell the bulk of its operations to J.P. Morgan Chase & Co.The banks keep failing and the ones left keep buying and buying...and getting bigger and bigger. Wasn't that part of the original problem? That some banks were too big to fail?
The closing represents the demise of what once was the largest U.S. thrift but came to symbolize many of the worst excesses of the mortgage boom. Federal regulators said WaMu has suffered an exodus of $16.7 billion in deposits since Sept. 15, leaving the Seattle thrift "with insufficient liquidity to meet its obligations." As a result, WaMu was in "an unsafe and unsound condition to transact business," according to the Office of Thrift Supervision.
While the exact structure of the transaction wasn't immediately known, J.P. Morgan is expected to acquire Washington Mutual's deposits and branches, as well as other operations. The deal isn't expected to result in any hit to the Federal Deposit Insurance Corp.'s bank-insurance fund, according to a person familiar with the arrangement. Some analysts have worried that a WaMu failure could cost more than $20 billion.
Where does this leave the consumer when the dust settles and there is only one or two banks left? I guess us consumers can pretty much forget about competitive rates, fair fee structures and customer service.
In the meantime however, WaMu customers should rest assured that the mortgages and credit card payments will still be due...only now to J.P. Morgan/Chase. Chase also should be guaranteeing all the deposits as this deal should not require the assistance of FDIC.
Let's hope that holds true, as I'm sure the FDIC is running short on funds these days.
Under the deal, New York-based J.P. Morgan, which has long coveted WaMu as a way to secure a footprint on the West Coast, will assume most of the thrift's deposits and branches, as well as some other operations.
Unlike many of the 12 bank failures that the FDIC has overseen this year, the J.P. Morgan-WaMu transaction isn't expected to impact the agency's national deposit-insurance fund. It wasn't immediately clear how the transaction would be structured to avoid the insurance fund taking a hit.
Friday and Monday of next week should be interesting to say the least.