When it came to the largest bank failure in U.S. history, the Federal Deposit Insurance Corp. found itself with no time to waste in selling Washington Mutual Inc.'s
banking assets if it didn't want the Deposit Insurance Fund to be overwhelmed.
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After taking over the struggling thrift on Thursday night, the FDIC
immediately turned around and sold WaMu's banking assets to J..P Morgan
Chase & Co. for $1.9 billion. The FDIC was able to pull the
transaction off so quickly because it had already rounded up buyers in case
WaMu was unable to find a buyer on its own. The Deal's Vipal Monga
wrote Thursday:
[The FDIC] accepted bids from several
interested buyers on Wednesday, Sept. 24. ... A source noted that the
FDIC likely wants to have bids in hand so it can weigh its options when
WaMu comes back to regulators at the end of the week.
The FDIC
had to walk a fine line with WaMu since taking over the bank, and its total assets of $309 billion could have
easily overwhelmed the Deposit Insurance Fund. The agency's takeover of
mortgage lender IndyMac in July was the second largest ever, and
IndyMac only had $32 billion of assets. The largest takeover, of
Continental Illinois in 1984, involved about $40 billion. As of July 1, the Deposit
Insurance Fund had about $45 billion as well as a $70 billion lines of
credit from Treasury.
The quick turnaround allowed the FDIC to
avoid having to deal with the massive write-downs and holding on to WaMu's
troubled mortgage assets. In buying the assets, J.P. Morgan took an immediate
$30.7 billion markdown. In spite of dodging a bullet
with WaMu, the FDIC is expected to have to tap taxpayers for more
funds to bolster the Deposit Insurance Fund should the rate of bank
failures continue to increase.
- George WhiteSee Dealscape post on J.P. Morgan-WaMuSee Crisis on Wall Street Dealwatch
