Monday, December 28, 2009

JP Morgan's takover of Washington Mutual. What does this tell us about other bank takeovers

 A friend sent me a link to an amazing insider's story from the Puget Sound Business Journal of how JPMorgan Chase took over the failing Washington Mutual financial empire. A key part of the story: apparently JPMorgan executives had insider knowledge about a liquidity run on the bank, allowing them to buy WaMu for pennies on the dollar. (read the entire post here) If this is true, it makes once wonder about the deals federal and state regulators are cutting with the institutions taking over the hundreds of banks that have failed this year. It's worth the read.

1 comment:

Bob Saberhagen said...

If WAMU was indeed insolvent, its failure imminent and if banking regulators were planning to close WAMU if a qualified buyer was not found, then the deal with JP Morgan/Chase might be have been the best available, if not the only option for both the banks and for the public.

It realistically seems to be an unfortunate circumstance that media reports of WAMU's insolvency helped induce depositors to withdraw funds in a "run" on the big bank rather than a government with JP Morgan conspiracy to aquire it by nefarious means.

But the media had a responsibility to publicly air facts concerning WAMU's troubles and depositors had a right to know that their funds might be in jeopardy.

It may be that JP Morgan's aquisition of WAMU may have essentially saved the essential WAMU system from certain death which may have been much more devastating to an economy teetering on the brink of global collapse than allowing it to fail.

Sure, JP Morgan/Chase was the recipient of the governments's TARP and/or STIMULUS funds which helped facilitate the WAMU purchase at a bargain basement price, but might that be better than WAMU's complete failure and closure?

And how many buyers were standing in line with the cash in hand necessary to buy the floundering firm?

We are not hearing that there were other entities qualified, willing and with the money to buy WAMU.

It appears that the WAMU acquisition by JP Morgan/Chase might have been one of a very limited number of options.

It is unfortunate that a big bank got even bigger, but who else could have or would have done the deal?