Government siezes WaMu; Sells assets to JP Morgan Chase

The long expected takeover of Washington Mutual Bank occurred today. This is the largest bank failure ever in the U.S. JP Morgan Chase will take over the assets of WaMu. WaMus branches will reopen Friday as branches of JP Morgan Chase bank.

The deal will cost JPMorgan Chase $1.9 billion, and the bank said in a statement it planned to write down WaMu's loan portfolio by approximately $31 billion. JPMorgan Chase, which acquired Bear Stearns Cos. last March, also said it would sell $8 billion in common stock to raise its capital position. [Snip]

The government measures bank failures by an institutions's assets; Seattle-based WaMu has roughly $310 billion in assets. The previous record was the failure of Continental Illinois National Bank in 1984, with $40 billion in assets when it closed. IndyMac, seized in July, had $32 billion.

WaMu was searching for a lifeline after piling up billions of dollars in losses due to failed mortgages; it has seen its stock price plummet 95 percent from a 52-week high of $36.47 to its close of $1.69 Thursday. On Wednesday, it suffered a ratings downgrade by Standard & Poor's that put it in danger of collapse. [Snip]

In a statement, JPMorgan Chase said it was not acquiring any senior unsecured debt, subordinated debt, and preferred stock of Washington Mutual's banks, or any assets or liabilities of the holding company, Washington Mutual Inc.

JPMorgan Chase said the acquisition will give it 5,400 branches in 23 states. JPMorgan Chase said it plans to close less than 10 percent of the two companies' branches; the bank has not yet decided which to close.

In March, the bank acquired the failing Bear Stearns in a deal brokered by the government. It paid $2.3 billion for the company and its stock, bringing its expenditure on both Bear Stearns and WaMu to a total of $4.2 billion.

According to the FDIC list of failed banks, this is the 20th bank to fail in 2008.