Quest for a Better Trade: JPMorgan Chase buys WAMU
In September 2008, Washington Mutual was the largest savings and loan
association in the United States. But like many of the banks and lending
institutions at that time, the giant was in trouble. It was on the verge of
going under, which could have possibly led to financial bedlam for a lot of
families who had loans with Washington Mutual.
A series of events occurred that protected individuals and businesses, but did
that result in a better trade, either for the Washington Mutual or JPMorgan
Chase (which ended up with the bank) or the individuals involved in the
largest bank failure in American history?
Here are the steps that led to the better trade opportunity for JPMorgan Chase:
On Sept. 25, 2008, Washington Mutual, the sixth-largest bank in the country,
was seized by the U.S. Office of Thrift Supervision. Their action was based on
a 10-day run that resulted in the withdrawal of $16.4 billion in deposits,
about 9 percent of its deposits.
Washington Mutual was placed in receivership by the Federal Deposit Insurance
Corporation, which sold the banking subsidiaries to JPMorgan Chase for $1.9
billion. All Washington Mutual branches opened the next day under the new
banner, with no interruption of individual services, a better trade in its
own right.
Washington Mutual was left with $33 billion in assets and $8 billion in debt
after being stripped of its banking subsidiary by the FDIC. It filed for
Chapter 11 bankruptcy the next day in Delaware. Washington Mutual owed $12.5
billion in back taxes and filed papers that alleged the amount should be
reduced, since its losses were so great, and that the company should actually
receive a tax refund.
Was it a better trade? It was certainly a better trade for JPMorgan Chase. The
purchase allows further expansion of the Chase brand. Washington Mutual
branches that remained opened were renamed Chase. All financial documents,
credit cards and debit cards were rebranded with the Chase logo.
The purchase allowed Chase to get a much-sought foothold on the West Coast,
certainly a better trade. More than 700 Washington Mutual branches in
California were rebranded with the Chase logo. The purchase gave Chase more
than 300 branches in the Pacific Northwest, more than a combined 700 branches
in Florida, Georgia, Connecticut, New Jersey, Illinois and Texas, and more
than 800 branches in California, Nevada, Arizona and Colorado.
Was it a better trade for WaMu? Washington Mutual doesn't believe so.
Washington Mutual filed suit against the FDIC for $40 billion in damages,
claiming the government had no justification in seizing its assets and that
the sale to JPMorgan Chase came at an unfairly low price. (JPMorgan Chase
immediately filed a counterclaim.)
Washington Mutual shareholders are fighting what they consider an illegal
seizure. They claim the OTS acted in "an arbitrary and capricious manner" and
seized the bank for political reasons or for the benefit of Chase, which ended
up with a large network of banks at a low price. Washington Mutual
shareholders maintain that the bank had enough liquidity to meet all its
obligations and was in compliance with a plan that had been negotiated with
the OTS just two weeks earlier. They do not view this as a better trade.
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