Friday, September 26, 2008
WaMu Fails, JPM Buys Deposits, Loans And QFC
On September 25, 2008, the banking operations of Washington Mutual, Inc - Washington Mutual Bank, Henderson, NV and Washington Mutual Bank, FSB, Park City, UT (Washington Mutual Bank) were sold in a transaction facilitated by the Office of Thrift Supervision (OTS) and the Federal Deposit Insurance Corporation (FDIC).JPM also bought the financial contracts according to FDIC:
All deposit accounts and all loans have been transferred to JPMorgan Chase Bank, National Association, Columbus, Ohio (JPMorgan Chase Bank). All former Washington Mutual Bank will reopen for normal business hours as branches of JPMorgan Chase Bank.
In connection with the sale of assets of Washington Mutual Bank to JPMorgan Chase & Co., the FDIC transferred to JPMorgan Chase & Co., all Qualified Financial Contracts to which Washington Mutual Bank was a party. Qualified Financial Contracts include swaps, options, futures, forwards, repurchase agreements and any other Qualified Financial Contract as defined in 12 U.S.C. Section 1821(e)(8)(D).So that tidies that up. But guess who gets left out in the cold? FDIC again:
JPMorgan Chase acquired the assets, assumed the qualified financial contracts and made a payment of $1.9 billion. Claims by equity, subordinated and senior debt holders were not acquired.Tell me more about covered bonds?
"WaMu's balance sheet and the payment paid by JPMorgan Chase allowed a transaction in which neither the uninsured depositors nor the insurance fund absorbed any losses," Bair said.
Washington Mutual Bank also has a subsidiary, Washington Mutual FSB, Park City, Utah. They have combined assets of $307 billion and total deposits of $188 billion.
I am tremendously relieved that WaMu was wound up. This leaves the FDIC fund in much better shape than it could have been, and it is very good that the uninsured depositors were covered. WaMu is far and away the biggest US bank failure ever. TPG (the savior earlier this year) lost its investment entirely.
JPM Chase is now out in front on US deposits. JPM Chase said they valued the loan portfolio independently. We'll see. Chase wrote a bunch of unbelievably bad loans in Florida during the bubble, so they should have some expertise in the matter by now.
Both covered bonds and corporate debt are going south in Europe. I don't know what's going to happen there. Some of the corporate debt is really, really dicey:
The bonds have handed investors a 1.12 percent loss this month, the biggest decline since they tumbled 1.41 percent in June 1999, according to Merrill Lynch & Co.'s European Covered Bond Index. Investors are demanding the highest yields, or spreads, to buy the securities relative to government debt in almost eight years.
The spread on its $2 billion of 4.375 percent bonds due 2014 has surged to 678 basis points, from 26 basis points when the notes were sold in May 2007, according to Royal Bank of Scotland Group Plc prices on Bloomberg.
Even with the decline, investors are doing better than those holding European corporate securities. Investment-grade company debt in euros has lost 3.9 percent this month, the biggest decline since Merrill began compiling the daily data in 1999, while bonds of financial companies have lost 5.1 percent.
I'm concerned about concentrating so much of the financial system into a small number of giants.
But the biggest giant of them all is Uncle Sam, and the reports I see say that the Dems want to funnel part of the future profits to a corrupt "community organizing" organization that's already facing voter registration fraud charges in several jurisdictions. If there are enough honest congresscritters, the bailout won't go through.
MoM, we joked last week about a shotgun wedding; it turned out to be a white trash shotgun wedding with a zombie for a bride.
I don't know the full ins and outs of how WaMu screwed up, but I think their mortgage unit was completely insane. They should have quit offering Option ARM loans 15 months ago when it was obvious that there were credit market troubles. Instead they kept offering the really _stupid_ instruments until this spring. Management that stupid deserves to die; I'm just sad that it affects the rest of the bank too.
I've had decent luck in dealing with Chase, so I'm cautiously optimistic about the new bank. I'll see how it goes.
WaMu's problem was products and appraisals. Apparently they were futzing their commercial appraisals too.
Links to this post: