NationStates Jolt Archive

http://www.msnbc.msn.com/id/26893612/
NEW YORK - JPMorgan Chase & Co. Inc. came to the rescue of Washington Mutual Inc. Thursday, buying the thrift's banking assets after WaMu was seized by the Federal Deposit Insurance Corp. in the largest failure ever of a U.S. bank. This is the second time in six months that JPMorgan Chase has taken over a major financial institution crippled by bad bets in the mortgage market.

The deal will cost JPMorgan Chase $1.9 billion, and the bank said in a statement it planned to write down WaMu's loan portfolio by approximately $31 billion. JPMorgan Chase, which acquired Bear Stearns Cos. last March, also said it would sell $8 billion in common stock to raise its capital position.

The FDIC, which insures bank deposits, said it would not have to dip into the insurance fund as a result of the seizure. There had been concerns that the fund, which took a big hit after the seizure of IndyMac Bank, could be depleted by a WaMu seizure.


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."

The government measures bank failures by an institutions's assets; Seattle-based WaMu has roughly $310 billion in assets. The previous record was the failure of Continental Illinois National Bank in 1984, with $40 billion in assets when it closed. IndyMac, seized in July, had $32 billion.

WaMu was searching for a lifeline after piling up billions of dollars in losses due to failed mortgages; it has seen its stock price plummet 95 percent from a 52-week high of $36.47 to its close of $1.69 Thursday. On Wednesday, it suffered a ratings downgrade by Standard & Poor's that put it in danger of collapse.


The Bush administration's proposal for a $700 billion bailout for distressed financial institutions was believed to have given fresh impetus to a buyout and new allure to WaMu. However, it was not immediately known how the bailout, which was still being negotiated in Washington late Thursday, would affect the JPMorgan Chase-WaMu deal.

JPMorgan Chase's chief executive, Jamie Dimon, said in a conference call, said the "only negative" related to the deal was "how to handle some of these bad assets." He did not elaborate.

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

The FDIC was seeking a buyer will to bear a large burden of WaMu's losses to lessen the impact on the insurance fund.

At the same time the "Bailout" plan is having Congress and the Executive branch yelling at each other.

This is not looking good at all.

http://www.msnbc.msn.com/id/26893612/


This is not looking good at all. Will the economy hold up much longer?

Awe, no more naked banker commercials?

I thought the buyout of WaMu was old news...?

*sniff* but WaMu was one of the few companies with GOOD commercials! They're not Geico, but...

Jamie Dimon must be feeling like God these days.

I know its a sin against capitalism to say this, but, I, for one, thing we should just LET the recession happen.
I'm no economics major, but I do know that the economy is supposed to be cyclical, hence it seems to me that, the longer we hold the recession off, the more it will cost to keep it from happening and the harder it'll hit when it comes.
Let a couple of the corporate giants die. It'll be good for everybody else in the long run.

JPMorgan Chase has been looking to expand to the West Coast for awhile now and this gives them a major foothold in that region. There'll be more consolidation on the horizon as the weaker companies are gutted and bought at steep discounts by stronger ones. Also, the Fed is relaxing regulations on allowing private investors to buy into banks so I except you'll see lots of rich guys and private equity firms moving into banking over the next few months.

JPMorgan Chase has been looking to expand to the West Coast for awhile now and this gives them a major foothold in that region. There'll be more consolidation on the horizon as the weaker companies are gutted and bought at steep discounts by stronger ones. Also, the Fed is relaxing regulations on allowing private investors to buy into banks so I except you'll see lots of rich guys and private equity firms moving into banking over the next few months.

As long as they're not stupid enough to de-regulate it to any substantial degree. Deregulation has become a corporate signal for "Grab as much money as you can fuck everyone below you!!"

As long as they're not stupid enough to de-regulate it to any substantial degree. Deregulation has become a corporate signal for "Grab as much money as you can fuck everyone below you!!"
Sadly it seems that high ranking people in companies have decided that it's better to personaly profit by screwing your employees than actually letting the company profit by selling products.

I know its a sin against capitalism to say this, but, I, for one, thing we should just LET the recession happen.
I'm no economics major, but I do know that the economy is supposed to be cyclical, hence it seems to me that, the longer we hold the recession off, the more it will cost to keep it from happening and the harder it'll hit when it comes.
Let a couple of the corporate giants die. It'll be good for everybody else in the long run.
Actually, government stepping in and taking over the institutions is more of a sin against capitalism than letting them fail and having a recession would be. The problem is the very real possibility it would be more like a "great depression" than merely a"recession." A repeat of the 1930s would NOT be so good.

I know its a sin against capitalism to say this, but, I, for one, thing we should just LET the recession happen.
I'm no economics major, but I do know that the economy is supposed to be cyclical, hence it seems to me that, the longer we hold the recession off, the more it will cost to keep it from happening and the harder it'll hit when it comes.
Let a couple of the corporate giants die. It'll be good for everybody else in the long run.


HEEEELLLLLL NOOOOOO!!!! You don't allow something like this to happen, you need to understand how bad this could get..I am talking a depression here. The government needs to stop fucking around and do something.



Wamu...Not good, thats my bank. What happens to my money?

HEEEELLLLLL NOOOOOO!!!! You don't allow something like this to happen, you need to understand how bad this could get..I am talking a depression here. The government needs to stop fucking around and do something.



Wamu...Not good, thats my bank. What happens to my money?

The FDIC will not need to dip into their funds to cover it, so I'm going to guess that for now it'll still be okay.

Let a couple of the corporate giants die. It'll be good for everybody else in the long run.
That's really, really not true. These aren't just any corporate giants, they are the guys that keep your ATM or your credit card spitting out money when you need it. If they fail properly, you better start buying tinned food...and don't expect your cash will be any good for very long either, so collect stuff to barter with as well.

And I am an economics major, so rest assured I'm not making this stuff up.

Wamu...Not good, thats my bank. What happens to my money?
Nothing. The FDIC saw that WAMU was dying, and stepped in. They held an auction for WAMU's deposits (which includes your money), and JPM bought it. So now JPM "owns" your deposit.

We'll see how they handle the branding and whether they close any branches, but for the time being nothing should change for you.

The FDIC will not need to dip into their funds to cover it, so I'm going to guess that for now it'll still be okay.

IIRC, a lesson learned from the bank runs leading to the Great Depression is that US banks no longer operate with less money on hand for immediate distribution than oustanding loans from customers so that banks do not lose solvency and run out of money in the extreme case of a bank run.

I'm no economics guy, but I'm sure I'm in the ballpark here...

JPMorgan Chase, which acquired Bear Stearns Cos. last March, also said it would sell $8 billion in common stock to raise its capital position.

A good time to buy??

IIRC, a lesson learned from the bank runs leading to the Great Depression is that US banks no longer operate with less money on hand for immediate distribution than oustanding loans from customers so that banks do not lose solvency and run out of money in the extreme case of a bank run.
Unless I misunderstand what you're trying to say, your model wouldn't allow a bank to exist.

Mr X goes to the bank and deposits $100.

The bank takes the $100 and lends $90 to Mr Y.

Mr Y takes the $90 and puts it in the bank (or pays someone for something and they put it in the bank).

The bank takes $90 and lends $81 to Mr Z.

Repeat ad nauseum.

In the end the bank holds deposits worth a lot more than the cash it actually received. The idea is that people as a whole never actually withdraw as much as they deposit, so you can get away with only holding a percentage of the nominal value of all the deposits in actual cash (the cash holding then being managed through them lending to each other for short periods, which is what has stopped and is freaking people out).

A bank run is when people call the bluff because they think the bank is in trouble - they all come in and ask for their deposits back. So Mr X takes his $100, and now there isn't enough left for Mr Y or Z.

The FDIC is supposed to prevent bank runs by promising to pay everyone their deposits (up to a certain amount) if it became necessary. This time, because they wanted to avoid having to use their own money to do it, they allowed JPM to take over the deposits, so that people hopefully have confidence that this new bank will be able to continue business. The second tool used are reserve requirements, that is laws that say a bank must keep X% of its deposits in liquid reserves. Liquid reserves don't earn as much of a return, since they can't be invested (for example into giving people loans), and so banks try to minimise them. Investment banks didn't have any reserve ratios, and very relaxed rules on how much debt they could make compared to their assets, which is why they were making so much money compared to normal banks. But now they're all dead.

A good time to buy??
Only if that stock is even remotely likely to increase in value. I mean, I know nay-saying is entirely self-fulfilling, but in a climate when people are hesitant to invest, it is sensible to be hesitant to invest.

A good time to buy??
If you've got balls, maybe. The sane one would probably at least wait for the details of the bail-out plan... JPM has plenty of the crap still on the hook too, and is facing the same high funding costs as the other banks.

Remember, this stuff isn't going on in share markets, on the equity side of things. Shit is hitting the fan in debt capital markets, and at the moment it seems like conditions there can change completely from one day to the next.

*snip for the sake of page length*

Like I said, it could very well be that I am misunderstanding what I'm trying to say, and what I was trying to say looks similar to the first few statements of your final paragraph, so I figure that I'm wrong.

Honestly, I'm a civil engineering major, so I'm basically learning a lot of this on the fly - hence, if things come out a bit jumbled or silly on my part, attribute it to the Telephone (http://en.wikipedia.org/wiki/Chinese_whispers) effect.

If you've got balls, maybe. The sane one would probably at least wait for the details of the bail-out plan... JPM has plenty of the crap still on the hook too, and is facing the same high funding costs as the other banks.

Remember, this stuff isn't going on in share markets, on the equity side of things. Shit is hitting the fan in debt capital markets, and at the moment it seems like conditions there can change completely from one day to the next.


If he means buying Wamu stock he may wanna look at this.

On September 25, 2008, federal regulators seized WaMu assets and sold most of it to JPMorgan Chase & Co. WaMu directors were kept in the dark before the announcement. JPMorgan Chase purchased WaMu's assets and qualified financial contracts for $1.9 billion. At the same time, the Office of Thrift Supervision closed WaMu and made the FDIC receiver. The transaction, arranged by the FDIC, does not require drawing from the FDIC insurance fund. Washington Mutual equity shares were not bought and it is believed shareholders will be wiped out in the deal.

If you've got balls, maybe. The sane one would probably at least wait for the details of the bail-out plan...

Well, yeah.

JPM has plenty of the crap still on the hook too, and is facing the same high funding costs as the other banks.

So how is it that they are able to take on Bear Stearns and WaMu? Sound like they are doing better than most financial institutions these days.

Remember, this stuff isn't going on in share markets, on the equity side of things. Shit is hitting the fan in debt capital markets, and at the moment it seems like conditions there can change completely from one day to the next.

True, but if I'm looking at a long-term investment, say not selling for at least a decade, what's the risk?

Nothing. The FDIC saw that WAMU was dying, and stepped in. They held an auction for WAMU's deposits (which includes your money), and JPM bought it. So now JPM "owns" your deposit.

We'll see how they handle the branding and whether they close any branches, but for the time being nothing should change for you.


If you say I am going to buy it. You always seem to know what you are talking about, so if your selling I'm buying.

Also wonder what those thousands and thousand of dollars I have in school loans from JPMorgan Chase will do to my bank account...If anything.

So how is it that they are able to take on Bear Stearns and WaMu? Sound like they are doing better than most financial institutions these days.

Jamie Dimon got out of sub-prime ages ago, he saw the numbers and simply knew that despite the short-term profits, it was simply unsustainable. At the time, Wall St. laughed while reaping greater profit but, as I say, he must be feeling like a God right now.

http://mutual-funds.us/2008/08/29/news/companies/tully_dimon.fortune/index.htm?postversion=2008090208

(Fortune Magazine) -- It was the second week of October 2006. William King, then J.P. Morgan's chief of securitized products, was vacationing in Rwanda, visiting remote coffee plantations he was helping to finance. One evening CEO Jamie Dimon tracked him down to fire a red alert. "Billy, I really want you to watch out for subprime!" Dimon's voice crackled over King's hotel phone. "We need to sell a lot of our positions. I've seen it before. This stuff could go up in smoke!"

A classic Dimon manic moment, the call is significant for two reasons. First, it marked the beginning of a remarkable strategic shift that helped J.P. Morgan, virtually alone among the big diversified banks, sidestep the worst of a historic credit crisis. Second, it sheds light on Dimon's distinctive management style - a blend of Cartesian analysis and inspirational leadership that, despite some bad bets in the home mortgage market, has moved J.P. Morgan (JPM, Fortune 500) to the front of the pack in global banking.

It's not all good but still..

Dimon and his team are on top today because they took a daring stance at the height of the credit bubble. J.P. Morgan mostly exited the business of securitizing subprime mortgages when it was still booming, shunning now notorious instruments such as SIVs (structured investment vehicles) and CDOs (collateralized debt obligations). With the notable exception of Goldman Sachs (GS, Fortune 500), J.P. Morgan's main competitors - including Citigroup, UBS (UBS), and Merrill Lynch (MER, Fortune 500) - ignored the danger signs and piled into those products in a feeding frenzy.

Make no mistake: J.P. Morgan is also suffering from the credit crunch. Dimon jumped into the home loan market just when others were retreating - and this time his contrarian instincts let him down. "We made our share of mistakes and messed up in home mortgages, and we're sorry," Dimon tells Fortune. And he sees more pain to come, as consumers caught in the economic downturn fall behind on mortgage, credit card, and car loan payments. The third quarter is already looking tough. J.P. Morgan has announced that it is taking $1.5 billion in mortgage and leveraged-loan write-downs, and another $600 million to account for the decline in the value of its Fannie Mae and Freddie Mac preferred stock.

Still, J.P. Morgan is weathering the crisis far better than its rivals.

So how is it that they are able to take on Bear Stearns and WaMu? Sound like they are doing better than most financial institutions these days.
The former they did with the government helping them along. This latest one is admittedly reasonably good news, but given what's at stake, I'd still do a lot of research right now. Watch the CDS spreads for them for a while, that sort of thing. Ask people who know more about it than me.

Unless you're in a big hurry and really want to take advantage of any bounce once the plan does go through (which you obviously aren't), the trough will last a while yet for financials, so you can probably wait a few more days or weeks to pick your champions.

True, but if I'm looking at a long-term investment, say not selling for at least a decade, what's the risk?
The risk is that they don't come out the other side of this. As was pointed out above, people aren't being kind to shareholders anymore.

Does this mean i can stop paying my credit card bill?

I'm simply amazed that there is such a thing as an Office of Thrift Regulation. Do they there to tell banks to buy cheap supermarket brand beans or something?

Fuck. Chase takes over another bad bank.


Im starting to worry that Chase will go under next. And thats my bank. Im seriously tempted to drive over there right now and get all my money out of all my accounts in cash.

Ill be my own fucking bank.