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WaMu Gets Failed Out

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Another day, another failout.

This time it was Washington Mutual's (NYSE: WM  ) turn to make the headlines as the largest bank failure in U.S. history. And JPMorgan Chase (NYSE: JPM  ) was there for the fire sale.

After a Lehman Brothers-bankruptcy-driven 10-day run on its deposits, WaMu was seized by the government on Thursday night (which speaks to the urgency of the situation -- seizures usually occur on Fridays to minimize disruptions).

Enter JPMorgan, which bought WaMu for a scant $1.9 billion (WaMu shares closed yesterday at $1.69, or $2.9 billion in market cap). Of course, JPMorgan also inherits WaMu's California-centric and exotic mortgage-laden balance sheet; it expects to write down $31 billion of bad loans and seek $8 billion of new capital.

Before last night's events, WaMu had many rumored suitors. The ranks included Citigroup (NYSE: C  ) , Wells Fargo (NYSE: WFC  ) , and Banco Santander SA, as well as some private-equity firms, but none was willing to pay up for a pre-seizure WaMu.

Ironically, JPMorgan was. Back in the spring of this year, JPMorgan offered $8 a share for Washington Mutual, only to be turned down in favor of a now-regrettable $7 billion infusion from private-equity firm TPG. My Foolish colleague Morgan Housel chastised management for turning the deal down then. Henry Paulson chastised management earlier this month.

WaMu shareholders (including TPG) are definitely the big losers in all of this. So are people who long for banks that aren't too big to fail. This year, JPMorgan has worked with the government to buy out not only WaMu but also Bear Stearns. Meanwhile, Bank of America (NYSE: BAC  ) swallowed up Countrywide and Merrill Lynch (NYSE: MER  ) . Those six companies were all too big to fail to begin with … now they're two mega-banks. Scary stuff.

More Foolishness:

Anand Chokkavelu doesn’t own shares in any of the companies mentioned. JPMorgan Chase and Bank of America are Motley Fool Income Investor recommendations. The Fool has a disclosure policy.

Read/Post Comments (5) | Recommend This Article (21)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 26, 2008, at 6:14 PM, JasonMichael wrote:

    Here is a stupid idea.

    Seize the bail out companies in question.

    Take the GOOD ASSETS and combine them with the $700B bailout fund. Sell off the bad debt for whatever we can get for it.

    Create a new PROFITABLE entity that can free up the credit market, make loans, etc that we need the bailout companies to do when they get the funds.

    We can call it j.p. wamu-goldsack for all I care just make sure this never happens agian.

    Then let the "bad guys" lie in the bed they made for themselves.

  • Report this Comment On September 26, 2008, at 7:54 PM, hikerdude7088 wrote:

    No one wants the bad debt. Believe me the private equity groups will swoop down and relieve us of all the problems we have for a very good price. They will get what they have wanted for decades. Control.

  • Report this Comment On September 27, 2008, at 10:15 AM, bullishlybearish wrote:

    Light at the End of the Tunnel?

    As everyone knows, a year ago the financial institutions and much of the street was telling everyone that "it's OK, it will work itself out."

    What does a "BAILOUT" really mean, and where does that put the 150 other insitutions, car and home improvement financing companies, also standing in line? A lot of these instituions will go down over the next two years, the $700B will be spent, and then the Wealth Sovereign Funds will come in, once, and only once the Balance Sheets are cleaned up, the CEO'S, and others have gone to jail, the recession has flushed out, and the interest rates have gone back up to 9-10%.

    Value will have its day again, and some will have learned what some of us already knew.

  • Report this Comment On September 27, 2008, at 9:27 PM, realitycheck13 wrote:

    The bailout and huge enlarging national debt is BAD for us in the long run.

    Some great articles on the bailout and more over at

    Washington Mutual Fails as FDIC seizes assets. Washington Mutual Inc. failed this week as the Federal Deposit Insurance Corporation (FDIC) stepped in and seized all of WAMU's assets. J.P. Morgan immediately bought certain profitable sections of WAMU for $1.9 billion dollars as WAMU's demise is showing the nation sure signs of just....

  • Report this Comment On October 09, 2008, at 1:22 PM, brombones246 wrote:

    Since the FDIC has been "working out" assets of failed financial institutions since 1933, I am searching for a reason for this dramatic "BAILOUT". The only reason I can see is some connections between the current lame duck administration and the companies being "bailed out"(other than banks). I can believe this because I believe they transferred a great deal of the Nations' wealth to Texas,via energy costs, and suffered no repercussions. I hope I am wrong, and I await their next action.

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