Thursday, September 25, 2008

WaMu - about time

WaMu went bye-bye tonight, and did so in a rather odd way.

Usually, when a bank goes kaput the FDIC takes over, lines up an acquirer, coughs up enough cash to keep the acquiring bank from losing money outright, and by Monday morning all is well.

This time JP Morgan paid the FDIC $1.9 billion. Huh?

JP Morgan bought the assets of WaMu, but not the liabilities (not the debt, preferred stock, or common stock). Who owns those now? I would assume that the FDIC does, but that isn't their role -- they just back deposits. Maybe the WaMu corporations do? It's shares won't buy a candy bar anymore.

The FDIC had been hunting for somebody, anybody, to buy WaMu for the past several weeks. As the largest US bank failure ever, there was substantial concern that WaMu's failure could wipe out the FDIC's fund.

By this time Saturday, people a whole lot more knowledgeable than I will no doubt have addressed some of these questions. To me, though, it's looking like JP Morgan may have gotten a sweetheart deal from the FDIC by being able to more or less acquire all of the potentially valuable parts of WaMu without the liabilities. Sorta like a drive through organ donor shop.

Something is odd here.

More will follow -- no doubt

News of the sale from various sources:
Wall Street Journal
CNN Money

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