WASHINGTON (CN) – The Federal Deposit Insurance Corp. seized Washington Mutual bank Thursday and sold it to JPMorgan Chase bank for $1.9 billion. It’s the largest U.S. bank failure in history.
WaMu has $307 billion in assets, far eclipsing the collapse of the $40 billion Continental Illinois Bank in 1984, and the $32 billion failure of IndyMac this July.
Seattle-based WaMu bet heavily and lost on the housing bubble. Its share price collapsed this year, sinking by 95 percent from a 52-week high of $36.47 to $1.69 on Thursday.
It’s the second major sick-bank acquisition for Morgan Chase this year. It bought Bear Stearns in March for $2.3 billion. Morgan Chase now is the nation’s second biggest bank, after Bank of America, which bought Merrill Lynch recently.
MorganChase’s purchase of the tottering but still giant bank will relieve pressure on the FDIC, which otherwise might have faced responsibility for $31 billion in WaMu debts, which would have severely depleted the FDIC’s $45.2 billion deposit insurance fund.
Sure to come under scrutiny, as Congress and the Bush administration struggle to put together a bailout plan for banks and mortgage lenders, is the pay package of WaMu’s recently hired CEO Alan Fishman. Hired less than three weeks ago, he got a $7.5 million “signing bonus” and may be eligible for another $11.6 million in severance pay.
WaMu’s home mortgage division reported $1 billion in profits in 2005, and $48 million in losses in 2006 – evidence that the home mortgage crisis that today threatens the entire U.S. economy should have been no surprise to market watchers, regulators or Congress. In July, WaMu reported that it lost $3 billion in this year’s second quarter.