On WaMu’s Birthday, JPMorgan Takes the Cake

Washington Mutual Bank (WM), the country’s largest savings and loan, was seized late Thursday night by federal regulators who immediately sold nearly all of its operations to JPMorgan (JPM) for $1.9 billion.

Regardless of this latest development Washington Mutual depositors are fully protected and won’t lose access to any of their money, even if it wasn’t fully insured, the Federal Deposit Insurance Corp. said.

For all depositors and other customers of Washington Mutual Bank, this is simply a combination of two banks,” said FDIC Chairman Sheila C. Bair. “For bank customers, it will be a seamless transition. There will be no interruption in services and bank customers should expect business as usual come Friday morning.

According to Federal regulators, WaMu customers in the last 10 days withdrew nearly $17 billion from the bank, leaving the Seattle thrift “with insufficient liquidity to meet its obligations.” As a result, said the Office of Thrift Supervision, “WaMu was in an unsafe and unsound condition to transact business.”

Regulators typically take over failed banks on Friday afternoons. It gives them more time to sort out things over the weekend. The FDIC, notes Reuters – said it did the deal on Thursday due to media leaks and to calm WaMu’s customers.

With assets of $307 billion and deposits of nearly $200 billion, far more than any bank that has ever gone under, WaMu is the largest bank to fail in U.S. history. The largest previous U.S. banking failure was Continental Illinois National Bank & Trust, which had $40 billion of assets when it collapsed in 1984.

Ironically, it was WaMu’s 119th birthday on Thursday.

JPMorgan said the transaction will allow the co. to now have 5,410 branches in 23 U.S. states from coast to coast, as well as the largest U.S. credit card business. WaMu had 2,200 branches concentrated in California, with large clusters in New York, Florida, Texas and the company’s home state of Washington.

With its new acquisition, the New York-based commercial bank J.P. Morgan will rival Bank of America (BAC) as the nation’s largest commercial bank. Jamie Dimon’s company currently ranks second with $440 billion in deposits and $2.04 trillion in assets as of June ’08. Clearly, the two co.’s are emerging as big winners in the current crisis.

Unfortunately, J.P. Morgan’s takeover of WaMu’s deposits is expected to wipe out WaMu stockholders and holders of the company’s senior debt. The transaction also represents a massive loss for private-equity firm Texas Pacific Group, which led a $7 billion investment into the thrift in April of this year. The transaction wipes out a $1.35 billion investment by David Bonderman’s private equity firm.

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