The Washington Mutual Option

Unfortunately, Washington Mutual failed on Thursday. According to an Associated Press story, it “is the largest bank to fail in our country’s history.” WaMu was a victim of the mortgage mess that has gripped Wall Street, Washington and the nation as a massive taxpayer bailout is being debated.

It should be noted that the WaMu failure will cost the taxpayers nothing. Instead, JPMorgan Chase is buying WaMu’s assets for $1.9 billion.

AP reported:

WaMu "was under severe liquidity pressure," FDIC Chairman Sheila Bair told reporters in a conference call.

"For all depositors and other customers of Washington Mutual Bank, this is simply a combination of two banks," Bair said in a statement. "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."

Besides JPMorgan Chase, Wells Fargo & Co., Citigroup Inc., HSBC, Spain's Banco Santander and Toronto-Dominion Bank of Canada were also reportedly possible suitors. WaMu was believed to be talking to private equity firms as well.

The AP story also noted:

JPMorgan Chase said the acquisition will give it 5,400 branches in 23 states, and that it plans to close less than 10 percent of the two companies' branches.

The WaMu acquisition would add 50 cents per share to JPMorgan's earnings in 2009, the bank said, adding that it expects to have pretax merger costs of approximately $1.5 billion while achieving pretax savings of approximately $1.5 billion by 2010.

"This is a definite win for JPMorgan," said Sebastian Hindman, an analyst at SNL Financial, who said JPMorgan should be able to shoulder the $31 billion writedown to WaMu's portfolio.

Hmmm, it seems like the market can work even in these tough times without government bailouts.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council