The WaMu Story



Saga of $4B


JPM Benefits








JPM Benefits of the WaMu Purchase


What Did JPM Gain in the purchase of WAMU bank and subsidiaries?

JPM had long coveted WaMu's West coast branch network, and had earlier offered $8 per common share for the entire company, an offer that would have assumed all debt and preferred stock of both WMB and WMI. It was rebuffed at the time for making a “lowball” offer; it was less than WMI common stock's market price at that time.

Through the seizure and acquisition, JPM expanded its' banking footprint into states with little Chase coverage. These include Washington, Oregon, California, and Florida. Along with $307B in assets they acquired $188B in deposits, 2239 branches, 4,932 owned and branded ATMs, and 43,198 employees.


They were also given the ability to return any branches they didn't want to the FDIC. JPM has indicated it would lay off 9200 employees and recently indicated they would cut another 2800 positions through attrition; the cuts total nearly 30% of WaMu's employees. Included in the purchase price was $1.5B of real estate or other assets (JPM's 10K, 12/31/08, p 82) and WMB's credit card business. Listed figures are as of 06/30/08 as stated in the OTS fact sheet below.

WMB's credit card business had been expanded on June 6, 2005 with the purchase of Providian Financial for $6.45B. JPM assumed both the WMB and Providian credit card subsidiaries along with all other subsidiaries of the bank. $10.6 Billion in credit card receivables were included.

JPM's Loan Portfolio

JPM stated in their conference call on 09/25/08 that the transaction would be, "Accretive immediately, 50 cents" (per share), and that it would result in a "Net cost savings (of) $1.5B, conservatively." "$176B (of) home loans (were) assumed", with "$30.7B losses projected."

"Just shy of $300B of assets" were assumed, with net assets of $31B after deducting liabilities. JPM then stated they would mark down $31B related to the loans. Coincidence? JPM can use those write downs to offset $31B in profits, resulting in a significant tax savings. At a 35% tax rate, this represents a tax savings of $10.85 Billion.

When asked about loan losses if the economy were to worsen, JPM stated that even under the pessimistic assumption if the loan losses exceeded expectations, the worst they would do would be to end up flat. Why? Because the other WMB assets would still be making money. JPM stated, "This transaction's generating $12B of capital over the next 3 years.” (That is after taxes.) WMB's acquisition would result in, a "stable, predictable earnings stream" due to retail customers.

An interesting quote from the 8-K filing on 01/15/09:


"JPMorgan Chase acquired the banking operations of Washington Mutual Bank for $1.9 billion. The fair value of the net assets acquired exceeded the purchase price which resulted in negative goodwill. In accordance with SFAS 141, non-financial assets that are not held-for-sale were written down against that negative goodwill. The negative goodwill that remained after writing down non-financial assets was recognized as an extraordinary gain."

After writing down part of the negative goodwill, JPM recognized an extraordinary gain of $1.9B. Without this extraordinary gain due to Washington Mutual, JPM would have reported a loss for the quarter.


FDIC accounting report on receivership detailing assets transferred

JPMorgans hedge fund was amazingly unscathed by the economic turmoil. Good trading sense or is there more to it?