Closure and sale of Washington Mutual leaves shareholders with almost nothing

Washington Mutual's inglorious end this evening may not be a disaster for its customers, who will quickly begin a new relationship with JPMorgan Chase, but it is despairing news for investors who hold the thrift's stock:

Shareholders and some bondholders will be wiped out. WaMu deposits are guaranteed by the Federal Deposit Insurance Corporation up to the $100,000 per account limit. Customers of Seattle-based WaMu are unlikely to be affected.

JPMorgan Chase — which acquired Bear Stearns only six months ago in another shotgun deal brokered by the government — is to take control Friday of all of WaMu’s 2,300 branches, which stretch from New York to California. The New York-based bank will oversee its big portfolio of mortgage and credit card loans. It will also acquire all of WaMu’s deposits with the sale.

Washington Mutual is by far the biggest bank failure in history, eclipsing the 1984 failure of Continental Illinois National Bank and Trust in Chicago, an event that presaged the savings and loan crisis. IndyMac, which was seized by regulators in July, was a tenth the size of WaMu.

The federal government's statement on the closure is as follows:

JPMorgan Chase acquired the banking operations of Washington Mutual Bank in a transaction facilitated by the Federal Deposit Insurance Corporation. All depositors are fully protected and there will be no cost to the Deposit Insurance Fund.

"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."

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.

"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.

Thursday evening, Washington Mutual was closed by the Office of Thrift Supervision and the FDIC named receiver. WaMu customers with questions should call their normal banking representative, service center, 1-800-788-7000 or visit WaMU.com. The FDIC's consumer hotline is 1-877-ASK-FDIC (1-877-275-3342) or visit fdic.gov.

As of 7:45 PM Pacific Time, WaMu's website contained no announcement related to the sale, nor a statement to calm uneasy or panicked customers.

The most recent news releases:

09/24/08 WaMu Recognized as Top Diverse Employer — Again
09/15/08 WaMu Responds to Standard & Poor's Actions
09/11/08 WaMu Responds to Moody's Downgrades

Yesterday, Washington Mutual was one of the most diverse employers in the nation. Tomorrow it will be little more than a shell.