JPMorgan Chase & Co., the third- biggest U.S. bank by assets, has agreed to acquire Washington Mutual Inc. for $1.9 billion. The savings and loan is facing $19 billion in mortgage-related losses whose market value halved in two weeks, the Office of Thrift Supervision said Thursday night.
WaMu, based in Seattle, collapsed after its credit rating was slashed to junk and potential suitors passed on making a bid. Facing $19 billion in losses on soured mortgage loans, the lender put itself up for sale last week. WaMu in March rebuffed a takeover offer from JPMorgan that WaMu valued at $4 a share.
The lender is the latest victim of a credit crunch that forced Lehman Brothers Holdings Inc. into bankruptcy, drove Merrill Lynch & Co. to sell itself to Bank of America Corp. and brought about the Federal Reserve-financed purchase of Bear Stearns Cos. by JPMorgan. Treasury Secretary Henry Paulson’s $700 billion plan to prop up the U.S. banking industry by buying distressed mortgages wasn’t enough to save the company.
“JPMorgan is getting a steal compared with what they were going to pay,” said Scott Adams, a pension and investment analyst at the American Federation of State, County and Municipal Employees in Oakland, Calif., which owns WaMu shares. “It’s very tragic.”
WaMu had about 2,300 branches and $182 billion in customer deposits at the end of June. Its $310 billion of assets dwarfs those of Continental Illinois Corp., previously the largest failed bank, which had $40 billion ($83 billion in 2008 dollars) when it was taken over in 1984.
WaMu’s stock has fallen 95 percent in 12 months on losses tied to sub prime lending and lost $6.3 billion in the past three quarters. It kept skidding even after joining a list of financial firms that the Securities and Exchange Commission protected from short selling in an effort to stabilize stock markets.
WaMu was the second-biggest provider of option adjustable-rate mortgages, behind Wachovia, with $54 billion in its portfolio in the first quarter, according to Inside Mortgage Finance. Of the $230 billion in loans secured by real estate at the end of the second quarter, $16.9 billion were subprime mortgages. WaMu, which ranked sixth among U.S. mortgage companies last year, was the 11th-biggest subprime lender in 2006, according to Inside Mortgage Finance.
JPMorgan, Citigroup Inc., Wells Fargo & Co., Banco Santander SA and Toronto-Dominion Bank had all expressed interest in buying all or parts of WaMu, said a person familiar with the matter. WaMu also approached Carlyle Group and Blackstone Group LP, two people briefed on the matter said.
Standard & Poor’s cut the bank’s credit rating twice in nine days as chances decreased that any deal wouldn’t be a buyout of the whole company, leaving creditors of the holding company to face substantial losses.
