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WaMu's Overnight Merger Stirs Angst, Relief In Tampa
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Published: September 27, 2008
TAMPA - JPMorgan Chase's Thursday night takeover of troubled lender Washington Mutual Inc. didn't erase the dread of some borrowers, including Rick Howell of Tampa. He had a $169,000 equity line of credit with WaMu.
Fearing his line of credit was eliminated, Howell drove to WaMu's West Shore branch in Tampa on Friday morning looking for answers. He left still not knowing whether his line of credit was available.
"This is a horrible situation," Howell said. "I don't think it's a good idea to write a check with a Washington Mutual name on it at this point."
Other WaMu customers weren't as concerned about the failure of one of the nation's largest banks. Carmelo Casamento of Tampa said he has been a satisfied WaMu customer for about three years and he's planning to stay with the bank under its new ownership.
"WaMu has been good to me. I have two houses and all of my accounts with them," Casamento said. "Hopefully, nothing is going to change for me."
After seizing control of the giant lender Thursday night, federal regulators immediately sold Seattle-based WaMu and its 2,300 branches to JPMorgan for $1.9 billion. The deal is expected to bolster WaMu's finances.
Ritch Workman, president of the Florida Association of Mortgage Brokers, said WaMu customers will be better off under JPMorgan Chase because it is strong enough financially to overcome WaMu's portfolio of troubled mortgages.
"I think Chase is just trying to keep up with Bank of America," Workman said. "Bank of America acquired Merrill Lynch and Countrywide because they had enough cash to offset the tremendous amount of bad debt that Merrill Lynch and Countrywide brought to the table. Chase is doing the same thing."
Failure Of Historic Proportions
The takeover of WaMu marks the largest bank failure in U.S. history, coming amid the collapse of other financial and insurance giants this month, including Fannie Mae, Freddie Mac, American International Group and Lehman Brothers.
WaMu's $307 billion in assets eclipse those of Continental Illinois National Bank, which failed in 1984 with $40 billion in assets.
Because of WaMu's souring mortgages and other risky debt, JPMorgan plans to write down WaMu's loan portfolio by about $31 billion - a figure that could change if the government goes through with its bailout plan and JPMorgan decides to take advantage of it.
"We're in favor of what the government is doing, but we're not relying on what the government is doing. We would've done it anyway," JPMorgan's chief executive officer, Jamie Dimon, said in a conference call Thursday night. Dimon said he does not know whether JPMorgan will take advantage of the bailout.
WaMu is JPMorgan Chase's second acquisition this year of a major financial institution hobbled by losing bets on mortgages. In March, JPMorgan bought the investment bank Bear Stearns Cos. for about $1.4 billion, plus another $900 million in stock ahead of the deal to secure it.
JPMorgan Chase is now the second-largest bank in the United States, after Bank of America Corp.
JPMorgan also said Thursday it plans to sell $8 billion in common stock to raise capital.
WaMu "was under severe liquidity pressure," Sheila Bair, chairman of the Federal Deposit Insurance Corp., told reporters in a conference call.
WaMu ran into trouble after it got caught up in the once-booming subprime mortgage business. Troubles then spread to other parts of WaMu's home loan portfolio, namely its "option" adjustable-rate mortgage loans. Such loans offer very low introductory payments and let borrowers defer some interest payments. The bank stopped originating those loans in June.
Problems in WaMu's home loan business began to surface in 2006, when the bank reported that the division lost $48 million, compared with net income of about $1 billion in 2005.
At the start of 2007, following the release of the company's annual financial report, then-CEO Kerry Killinger said the bank had prepared for a slowdown in its housing business by sharply reducing its subprime mortgage lending and servicing of loans.
As more borrowers became delinquent on their mortgages, WaMu worked to help troubled customers refinance their loans as a way to avoid default and foreclosure, committing $2 billion to the effort in April. But that proved to be too little, too late.
At the same time, fears of growing credit problems kept investors from purchasing debt backed by those loans, drying up a source of cash flow for banks that made subprime loans.
$3 Billion Lost In 2nd Quarter
In December, WaMu said it would shutter its subprime lending business and reduce expenses with layoffs and a dividend cut.
The bank in July reported a $3 billion second-quarter loss - the biggest in its history - as it boosted its reserves to more than $8 billion to cover losses on bad loans. Over the last three quarters, it added $10.9 billion to its loan-loss provisions.
JPMorgan Chase said it was not acquiring any senior unsecured debt, subordinated debt and preferred stock of WaMu's banks, or any assets or liabilities of the holding company, Washington Mutual Inc. JPMorgan also said it will not take on the lawsuits facing the holding company.
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 a share to JPMorgan's earnings in 2009, the bank said, adding that it expects to have pretax merger costs of about $1.5 billion while achieving pretax savings of about $1.5 billion by 2010.
Howell, the Tampa resident worried about his line of credit at WaMu, said he plans to pull money out of some of his stock investments to make ends meet.
"I think it's going to take years to get all this straightened out," he said.
ONLINE
Washington Mutual customers can hear a message from Chase at www.chase.com/welcomewamu.
Information from The Associated Press was used in this report. Reporter Russell Ray can be reached at (813) 259-7870 or rray@tampatrib.com.
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