J.P. Morgan Chase & Co. has, with the government’s help, essentially saved the banking system from collapse. I know that sounds like an overly dramatic claim, but the mood on the floor of the NYSE this morning was approaching panic. If the two parties had not moved when they did, there might have been a widespread sell off in the market this morning. The financial stocks were off sharply in pre-market quotes and if the depositors of WaMu got a whiff of panic coming from the Street, any resulting run on WaMu could have set off something we haven’t seen in this country since 1932. A full fledged run on the banks and a resulting “bank holiday” where the banks are closed while the government attempts to restore liquidity to the system.
As it stands at 9 AM CT, the Dow is off a bit, but much more importantly, the FDIC did not have to take the hit on WaMu’s collapse. J.P. Morgan Chase’s rescue prevented that.
~~John Cronin~~
http://online.wsj.com/article/SB122238415586576687.html
In what is by far the largest bank failure in U.S. history, federal regulators seized Washington Mutual Inc. and struck a deal to sell the bulk of its operations to J.P. Morgan Chase & Co.
The collapse of the Seattle thrift, which was triggered by a wave of deposit withdrawals, marks a new low point in the country’s financial crisis. But the deal, as constructed by the Federal Deposit Insurance Corp., could hold some glimmers of hope for the beleaguered banking system because it averts any hit to the bank-insurance fund.
Instead, J.P. Morgan agreed to pay $1.9 billion to the government for WaMu’s banking operations and will assume the loan portfolio of the thrift, which has $307 billion in assets. The full cost to J.P. Morgan will be much higher, because it plans to write down about $31 billion of the bad loans and raise $8 billion in new capital. All WaMu depositors will have access to their cash, but holders of more than $30 billion in debt and preferred stock will likely see little if any recovery.
The deal will vault J.P. Morgan into first place in nationwide deposits and greatly expand its franchise.
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