Washington Mutual fails

| September 26, 2008 | 0 Comments
Washington Mutual fails

Washtington Mutual, the largest “thrift” bank in the US, has failed, after a run on savings by its customers.

Regulators from the Office of Thrift Supervision (OTS) stepped in last night and took over the company briefly, before selling it on to JP Morgan for just £1 billion.

The move means that Washington Mutual, also known affectionately as WaMu, has been declared bust and its sale now makes JP Morgan the second largest bank in the US.

Washington Mutual had been very badly exposed to the subprime mortgage market, but still had around $188 billion in savers deposits.

However, while ratings agencies earlier this month reported that WaMu had enough capital to continue operating for the next two years, almost 10% of deposits were withdrawn over the past 10 days.

Regulators feared the bank was in danger of imminent collapse, and so moved to sell the company in order to safeguard investors.

WaMu was set up in 1889, and to date has 2,239 branches in 15 states, employing 43,198 people.

Washington Mutual was the largest savings and loan company in the US - also known as a thrift - and is roughly equivalent to a building society in terms of operations, though with the distinction of being a publicly traded company rather than mutual ownership.

The sale of Washington Mutual for $1.9 billion effectively valued the company at just over $1 a share, and is in stark contrast to the $74 billion the company market cap and $44 a share the company was running at last year before the credit crunch hit.

The deal means that JP Morgan may have taken on larger mortgage liabilities, but the fact the company paid relatively little for over $150 billion in deposits puts JP Morgan in a very strong position for the future, with or without a Federal bail out on mortgage sales.

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