The WaMu Story



Saga of $4B


JPM Benefits








The Speaker is Charlie Scharf, Chief Executive Officer of Retail Financial Services, speaking at a JPMorgan Shareholders Meeting, about the WaMu Seizure.

It's about 2 minutes long.

It should automatically play, but if not here's a link: charlie

Charlie Scharf Speaking:

"Great brands take a long time to build" - Like the WaMu Brand for instance???

Please Register your Shares: WaMu Equity Group

Case Numbers:

Ch11: 08-12229
Adversary against JPM/FDIC: 09-50934


Bottom Line: WaMu was RAPED on her Birthday, by the COLLUSION between JPMorgan, the FDIC, the OTS, the courts, the SEC and persons in government.

Note that many documents linked to in this page have been removed to hide the truth.

Note also the amount paid for WaMu: $1889M. $1M more than the year she was born: 1888. Guess they didn't pick the number out of a hat did they?


Latest Development 6-3-2009: WMI files Counter Claims against JPM for Billions of dollars: WMI Counter Claims

What follows is a detailed timeline of the events surrounding the seizure of Washington Mutual Bank. We have a condensed version here: The Short Version.

Calendar of Important Dates:

5-20-2009: WMI moves to investigate JP Morgan!! Seeks $Billions in damages.
Phrases like 'far below market value', 'premeditated plan', 'designed to damage', 'purchase...on the cheap', 'wrongful
conduct', 'sham negotiations', 'misusing confidential information', 'violation of confidentiality agreement', 'unfair advantage', and 'fire sale prices' are in the court motion: CNBC Story

WMI is also suing JPMorgan for return of their $4Billion deposit.

Washington Mutual Inc has filed suit against the FDIC, and seeks damages of approx $40 Billion: WMI vs FDIC Filed Document.

Behind the scenes. The havoc wreaked by some very powerful men: The Goldman Conspiracy:

Latest Monthly Operating Report:: April 2009 Operating Report

From the book 'House Of Cards: A Tale Of Hubris And Wretched Excess On Wall Street' by Cohan, William D.

This book includes proof that Chase/JP Morgan acted in concert with the US Treasury and the Fed to acquire Bear Stearns for a pittance which then set the stage for a repeat-performance when Chase/JP Morgan was allowed to buy Washington Mutual banks at a fire sale price.

Here is a small peek into the inner workings that brought WaMu down:

A final decision had just been made by the US Treasury, i.e., Hank Paulson, in tandem with the Fed and major firms on Wall Street, that there would be no bailout of Lehman Brothers and that Lehman Brothers would be forced into bankruptcy.

After Thain, Paulson and Geithner had left the New York Fed Sunday morning, the following exchange ensued, according to several sources that were there. John Mack, the CEO of Morgan Stanley, spoke up. 'Maybe we should let Merrill [Lynch] go down, too. he said.

Aghast, JPMorgan Chase's [Jamie] Dimon pointed out how shortsighted that was of Mack because Morgan Stanley might be the next firm that counterparties lost faith in. 'John, if we do that, how many hours do you think it would be before Fidelity would call you up and tell you it was no longer willing to roll your paper?'

Dimon's comment quieted Mack. 'We thought Mack said that because he might be buying Merrill,' someone who heard Mack's statement said, and wanted to buy the firm on the cheap. (Mack denied he made the comment through a spokesman. A spokesman for Dimon said Dimon did not remember having the conversation with Mack.)

The Wamu Story

Washington Mutual Bank, or WaMu, as it was known by its customers and employees, was seized on Thursday, September 25, 2008. The OTS intended to seize them on Friday, but the schedule was moved up one day when a media leak threatened to expose the seizure.

This is the story of what happened, and when, as well as some factors that affected the demise and sale of the bank. It should be noted that Washington Mutual Bank (WMB) was the largest thrift in the United States, and one of its largest banks. The seizure and sale were conducted in secret while Washington Mutual Bank was still well capitalized, liquid, while TARP was pending, and in fact at the same time WaMu was seeking bids to sell itself. 

Washington Mutual Bank (WMB) was a subsidiary of Washington Mutual Inc.  (WMI) Washington Mutual Inc had many other subsidiaries before the seizure and sale by the OTS and the FDIC.  They had many less subsidiaries after that transaction-- some that may have not been associated with or subsidiaries of the bank (WMB).

Subsidiaries Post Seizure   See pg.22


Washington Mutual had $307 Billion in assets, $188B in deposits, 2239 branches, 4,932 owned and branded ATMs, and 43,198 employees at the time of seizure.  They had multiple subsidiaries that were sold as well.    The FDIC brokered the “sale” for $1,888 Million.  Washington Mutual began after the “Seattle Fire” of 1889 was seized on its 119th Birthday.


The FDIC decided that $1,888 Million was a just and fair price for the bank.  It is interesting to note that the auction offer presented by the FDIC permitted banks to bid $0.0 for the bank, and also totally disregarded the stockholders and bondholders, as well as other liabilities of the bank.  The FDIC required only the administrative costs for the transaction, and held the bank for only a few hours before ownership was transferred to JPMorgan.  Washington Mutual Bank was forced to file Chapter 11 the following day.  They lost $26 Billion in stock of WAMU (WMB) due to the bank seizure. 

The recent declines in the stock market are well known, but few people realize that WaMu may have been the straw that broke the camel's back. This seizure impacted not just Washington Mutual Inc investors, but all types of investments in all US stock markets. Shock waves have cascaded throughout stock markets worldwide. This leads one to question whether Washington Mutual Bank should have been seized that September evening. The sale of WAMU, for a fraction of its worth, was conducted without regard for the bondholders or shareholders of the bank, much less for the effects to the confidence in our stock markets and our government in general.

Should WaMu have been seized, that fateful day?

 Did the regulatory bodies overseeing WaMu do their jobs properly?

You be the judge.


In April, 2008, JPM tried to buy Washington Mutual.  They had long coveted the thrift for its many branches in markets where they had none and wanted to expand.  The price of expanding by themselves, without buying Washington Mutual, was cost-prohibitive. Washington Mutual considered the $8 per share offer from JPMorgan too little for the expansive bank with $307B in assets, $188B in deposits, 2239 branches, 4,932 owned and branded ATMs, and 43,198 employees. 

JPMorgans offer was rebuffed and Washington Mutual chose to enter a contract with TPG and several investors instead, for a $7 Billion Capital injection. David Bonderman heads TPG, a company known for its talent in identifying and maximizing investment opportunities.  Bonderman had been on the Washington Mutual Board of Directors previously and rejoined the board as part of their agreement.


“Two months before Washington Mutual failed, Treasury Secretary Henry Paulson warned then-CEO Kerry Killinger that he ought to sell the Seattle-based thrift before it deteriorated further.  ‘Paulson said, 'You should have sold to JPMorgan Chase in the spring, and you should do so now. Things could get a lot more difficult for you,' said one of several current and former high-ranking WaMu executives familiar with details of the call.”


07/15/08--SEC Enhances Investor Protections Against Naked Short Selling


That makes it sound like they were doing their job doesn’t it?  Unfortunately it was well known by hedge funds and other “shorters” that the naked short selling ban was not enforced.  Naked short selling of Washington Mutual continued to damage Washington Mutual severely and although it is illegal, the SEC did nothing to stop it. 

WaMu was not put on the list of banks that were not to be shorted. WaMu CEO Killinger specifically asked for WaMu to be added to the list but was refused.  The
Short ban notice announcement on 15 July by the SEC was to be effective the 21st.  On July 17, Killinger, the CEO, sent a FAX transmittal, requesting to be added to the “no short” list and was refused.  It is interesting to note the fax, which was received on the 17th was logged in as received 8:40pm on the 22nd by the "Chairman's Correspondence Unit".


The American Bankers Association, representing the interest of 8,500 banks, said in a letter to the SEC that it fears short sellers will now concentrate their efforts on banks that are not covered by the emergency order. They asked that the order be expanded to include stocks of all banks and bank holding companies.  This request was also ignored.

Evidence of Damage Caused by Naked Short Selling: WAMU Stock Price vs. Failure to Deliver (FTD) of Securities

September 29, 2008

American Banker magazine cites that the OTS did not want to seize the bank but the FDIC pressured them into it.

It has been widely discussed that the FDIC was under funded to cover the amount of deposits they had to insure, and that the FDIC and OTS had differing opinions about whether WAMU should be seized. The FDIC feared depletion of its reserves and they expected other bank failures. Congress had not increased its ability to raise premiums for many years, and indeed no bank premiums were collected from 1996 to 2006, as the FDIC was at its maximum threshold as required by law. They have since increased their premiums.

It is interesting to note however, the FDIC did have the ability to borrow $30 Billion from the Treasury at the time. It is not clear why they did not use their discretionary power to support the one of the largest banks in the country, at least on a temporary basis. The bank had access to $54 Billion of liquidity at that time--$4 Billion was on deposit at Washington Mutual Bank and another $50 Billion was available, assumedly from the secondary window at the Federal Reserve in San Francisco.

While all of this was happening the Economic Stabilization Act was being discussed in Congress. While there was no question that TARP, as it has come to be known, would eventually pass, there were arguments over many details to be worked out. The bailout would have alleviated the banks difficulties, at least in the short term, until a proper sale could be arranged, rather than a "fire sale" which ultimately gave the bank away for far less than fair value. The fact that the bailout was pending meant banks were hesitant to bid due to the uncertainty; this has been well documented in multiple news articles.

 OTS fact sheet

NOTE: There is no record of any document wherein WaMu was required to raise additional capital, or improve its liquidity.

On 09/25/08 the OTS released a press release and recording about the seizure of Washington notes they were well-capitalized at the time of the seizure.

OTS Enforcement Actions noted on this report.

-- October 17, 2007 – Issued a Cease and Desist Order related to deficiencies in Bank
Secrecy Act/Anti-Money Laundering (BSA/AML) programs

-- October 17, 2007 – Assessed Civil Money Penalties (CMPs) related to violation of
flood insurance regulations

-- November 14, 2007 – Initiated a formal examination of the appraisal process to
assess the validity of a complaint filed by the New York Attorney General’s
(NYAG) Office

-- February 27, 2008 – Issued overall composite ratings downgrade and received a
Board resolution in response to the supervisory action

-- June 30, 2008 – Initiated discussions about Memorandums of Understanding with
WMI and WMB (Washington Mutual Bank)

-- September 7, 2008 - Issued Memorandums of Understanding to WMI and WMB

-- September 18, 2008 – Issued overall composite ratings downgrade

OTS Press release recording

Discusses the bank seizure.

Sept 8, 2008. WaMu said that it has entered into a memorandum of understanding with the Office of Thrift Supervision concerning aspects of its operations. WaMu committed to provide the OTS with an updated, multi-year business plan and forecast for its earnings, asset quality, and capital and business segment performance. The plan did not require the company to raise capital or increase liquidity, WaMu said. (This plan was approved by the OTS)

09/11/08: WaMu provides an Update on Expectations for Third Quarter Performance and notes the company continues to maintain a strong liquidity position with approximately $50 billion of liquidity from reliable funding sources. “The company's tier 1 leverage and total risk-based capital ratios at June 30, 2008 were 7.76%, and 13.93%, respectively, which were significantly above the regulatory requirements for well capitalized institutions. The company expects both ratios to remain significantly above the levels for well-capitalized institutions at the end of the third quarter.”  (


12/31/08: OTS press release regarding TARP after they saw what mayhem the seizure of Washington Mutual caused.

It is interesting to note that the West Coast Regional Director, Darrel Dochow, was transferred after it was discovered there were irregularities in bookkeeping methods, which were approved by Dochow, in the Indy Mac failure.  It has been also revealed that he permitted bookkeeping irregularities with 4 other banks in his region.  The other banks have not been named.  Dochow had also been implicated in oversight failures in the Savings and Loan crisis in the 1980’s and 1990’s.  Dochow was demoted after that, but was later promoted again to West Coast Regional Director.  He was transferred after the Indy Mac irregularities were made public and he later retired.


FDIC Actions that adversely affected the sale and auction of Washington Mutual

09/23/08: FDIC auction "offer" -- essentially says that the bidders can have the bank for nothing as long as they pay the administrative costs of the transaction. (which are left blank)  It also says they can have any assets, whether they are on the banks books or not (this info is on page one).

Sheila Bair said that the Washington Mutual seizure was done at no cost to the taxpayers, but what were the administrative costs? That part of the agreement was left blank. The shareholders and bondholders who lost as much as $30 Billion were not considered, nor were the corporations, Pension plans, or other institutions who owned (at that time) approximately 68% of Washington Mutual Common Stock.  (E-trade).  Retirements for many people were wiped out either directly by the loss of value in Washington Mutual Stock, or indirectly through the loss in their Pension plans, 401K’s and the general market panic that ensued. There is also a human cost; JPM has announced layoffs of 9200 WaMu employees with plans to cut an additional 2800 by attrition.  It has recently been noted in the news that JPMorgan has made plans to outsource many jobs in their organization.

All the following documents regarding the FDIC auction are posted at and were supplied by the FDIC via FOIA (Freedom of Information Act)

FDIC sends out “official” bid notice. Date of fax –Sept 24, 2008.


“5. Definitive Documents. Each Potential Acquirer's bid(s) should be based upon the relevant transactions described in the Legal Documents and these Instructions. Each should note that the transactions are merely summarized herein and the Legal Documents are much more detailed. The Legal Documents will govern the transaction regardless of the contents of these Instructions and any other written or oral material or communication.”

JPMorgan bid for WAMU…NOTE: The details of the bid are redacted.

Washington Mutual Bank Closing book Sept 25, 2008:  Date of seizure.


“The bid for alternatives 1, 2, or 3 must be at least the FDIC's administrative costs of the closing equal to $_________________ (amount to be provided).
Assets Purchased: The Assuming Bank will purchase all assets whether or not on the books of the Bank, except for those that are specifically excluded under Article III of the Whole Bank agreement. In general, all assets are acquired at book value with the exception of securities which are purchased at fair market value.”

Of note, there was another bid for the bank. The FDIC will not release any information on that bid. Another FOIA request confirmed the bidder as Citigroup, but their bid was deemed "nonconforming" and the information was so heavily redacted that it was nearly a black page.

Also of note, banks were quoted as saying they would not bid on WAMU until they saw what would happen with TARP. Congress was debating the issues and it was expected to pass at any time. TARP passed 8 days after WAMU was seized.

Four banks submitted their plans by the Wednesday due date, and the same day JPMorgan was notified it had won. The FDIC declined to name the other participating banks.

The FDIC updated their billing process on Sep 23rd, the same day they secretly put WAMU on the auction block. The seizure was later moved up one day due to a “leak”-- the secret auction was no longer a secret and had been leaked to the press. Though widely discussed in the press, the source of the leak has not been identified.

FDIC Purchase and Assumption Agreement

NOTE: It cites Schedule 3.1a as a list of the assets to be purchased. After someone wrote the FDIC wanting a copy of that list, they then changed the FDIC website indicating that it was a scrivener’s error and no 3.1a document exists. It appears there is NO LIST of what was included in the purchase.

Statement of Assets & Liabilities in Liquidation (unaudited) FDIC document

It should be noted that the value placed on Washington Mutual Bank varies widely, depending on the source. The figures cited by the FDIC are noted to be "unaudited".

JPMorgan divulges they knew about the seizure Sep 19th, and it actually sounds like the “deal was done” before the auction began.

Investor’s Day 26 FEB 2009 08:30

Charlie Scharf (JPMorgan) said, at their Investor’s Day Conference, they were notified about the bank seizure on Sept. 19, 2008. Fast forward to 3 hours 14 minutes to hear the following excerpt:

"We did a lot of work over a long period of time...really analyzing the company, and then when the deal got done, it happened very very quickly.


Got the call from the FDIC on a Friday (9-19), they came to meet with us on a Monday (9-22), the deal was announced Thursday night (9-25). the deal was announced Thursday night, that night as Mike mentioned Rick raised  $11B of capital, and then Friday morning, Todd was in California and Gordon was in California, different places cause uh Irvine vs. San Fran.


I was out in ah Seattle, Frank came out to Seattle, J (Dimon) was out in Seattle, the place…you know it was ours the next day...very, you know non traditional transaction with immediate ownership"..."the business was seized by the FDIC" -- Charlie Scharf, Chief Executive Officer of Retail Financial Services.


Charlie Scharf Speaking:


A little known fact is that Washington Mutual had $50 Billion cash available from the secondary Fed Reserve Window in San Francisco. One must wonder whether the OTS and the FDIC knew about this. It is apparent the FDIC did not know about the $4 Billion dollar deposit, as they later tried to claim it in bankruptcy court.  JPM also tried to claim this money in court. The court determined the money belonged to the parent company, Washington Mutual Inc. (WMI).

It appears JPMorgan may have known well in advance of the plans for seizure (by some reports three weeks in advance). It is unknown whether the other banks were also unofficially informed of the seizure, well in advance.  Was the auction a fair playing field? Did all the bidders have the same information JPMorgan had?


Washington Mutual was not aware of these backroom discussions between JPM and the FDIC. In fact, Washington Mutual, through Goldman Sachs, was trying to sell the bank on the open market to those very same banks, but curiously their attempt drew no bidders.


Why would a bank bid openly with Washington Mutual when they knew the FDIC was offering a deal, behind Washington Mutuals back for only the choicest assets instead of the entire bank?  The FDIC was offering a much better deal, then Washington Mutual was able to offer, you see the FDIC offered the bank for the price of $00.00.  Their behind the scenes discussions interfered with the banks ability to sell itself. 

Did JPM know three weeks prior to Sept 25 of a possible FDIC seizure? Was the bidding process fair and impartial? That is an issue for a Congressional Hearing to decide. The entire matter is currently under a clandestine investigation.  Many shareholders have contacted their Congressional Representatives requesting an open Congressional Hearing on this matter.  In most cases they have received no response from Congress.    



Sheila Bair said, shortly after the seizure of Washington Mutual, the seizure was stepped up due to a leak.  Washington Mutual was on the radar for some time, said Bair, who noted that the timetable for the seizure was bumped up due to a potential media leak. She added that all deposits, both insured and uninsured are covered.”



But here she says it was stepped up due to its deteriorating condition.  She said that “the bank’s rapidly deteriorating condition prompted regulators to seize it Thursday, and not on a Friday as is typical for bank closures.   Which is it Ms. Bair?  On the date of seizure (earlier in the day than the bank was seized), CNBC aired a short news clip about a bank run they identified as Washington Mutual, and then “broke” for commercial.  When they came back online they noted that the previous story was inaccurate, and the bank run was at a different bank (Indy Mac?).


News stories often report that Washington Mutual was seized after withdrawals of $16.7 Billion over a nine day period which began on Sep 15th.  As we now know, there were plans to seize Washington Mutual before the 25th.  In fact, JPMorgan was notified Sept 19th about the seizure, and indeed knew about the prospects for seizure three weeks in advance.  No information has been released regarding the situation at the time the OTS began making plans to seize the institution.



Later, Paul Kanjorski stated on national television that there was a $550 Billion drawdown in the market at this time.  What effect did this have on the seizure of Washington Mutual?


The “Economic Meltdown”

09/18/08: It has recently come to light that on the 18th of September there was a 550 Billion dollar drawn down on money market funds during a 2 hour period, and there was panic among regulators

(Frontline--PBS). This indicates that most, if not all, banks were under significant pressure at that time. There is much discussion about the veracity of this statement by Paul Kanjorski.

Why was Washington Mutual singled out when this draw down was occurring at all banks? There was a systemic country wide financial meltdown; why was WAMU seized? Washington Mutual was liquid and well capitalized. The seizure was unjustified, premature, and unwarranted.

The FDIC arranged a similar transaction in the case of Citigroup's acquisition of Wachovia for $2.1 billion. It was in the form of a forced sale, under the threat of seizure. The agreement reached would have required federal assistance to mitigate risk to Citigroup. However, Wells Fargo offered $15 billion to purchase Wachovia outright shortly thereafter despite Citi's signed deal.  A legal battle ensued, the FDIC maintained that it stood behind Citigroup and the deal it had brokered, but Wells Fargo was the eventual victor due to their superior offer.


Perhaps the differentiating factor was the fact that the sale of Wachovia was done publicly, over a period of a week or more, rather than secretly over a period of hours, as the WAMU "deal" had been completed.

Stock market charts show that the day following the seizure of WAMU, the markets took a nosedive. This is thought to be because investors felt they could no longer trust the government, since they had become erratic in their treatment of the banking crisis. The OTS/FDIC caused the very thing it is supposed to prevent: a bank panic. The premature seizure destroyed the value of WaMu's bondholders and stockholders, at the same time destroying confidence in the market. Why invest in any publicly traded company if the government can arbitrarily seize your interest, leaving you nothing, or perhaps pennies on the dollar?

Note the market performance since the 09/25/2008 seizure:

 Click on image to enlarge 

How J.P. Morgan Raised $11.5 Billion in 24 Hours

Three weeks before JPMorgan bought WaMu’s deposits for $1.9 billion, officials at the Federal Deposit Insurance Corporation had called JPMorgan to say that the FDIC was carefully monitoring WaMu and that a seizure of its assets was likely. There have been no news articles indicating that the other banks were notified at that time.

Since the seizure, JPMorgan and the FDIC have challenged Washington Mutual Inc (the Holding Company that owned WMB) on tax benefits of writing off its losses prior to the seizure.

01/22/09: JPMorgan objects to having to show what they bought (file claim) by 3/31/09.  That may be because they can't; there is no list in the Purchase and Assumption Agreement (3.1a), although the purchase agreement cites there should be. The purchase agreement is incomplete. JPMorgan objected to having to show any claim by the claim filing deadline. Their objection was overruled by Judge Walrath, the judge presiding over the bankruptcy case.


Claim against the FDIC

02/05/09: Weil and Gotshal have filed a claim against the FDIC (December 30, 2008).  WMI was given $0.00 for the bank, despite a book value well over $20 billion at the time of seizure. The FDIC failed to get a reasonable price, even though they are required by law to maximize the return on the assets seized as well as to minimize the impact to the FDIC fund.  There are many differing opinions on what the value of the bank was, but of the sources we could find, none felt the bank was worth a mere $1.9 Billion. JPMorgan got the bank at a substantial discount, as they have documented well in their SEC filings. They even booked a $1.9 Billion gain the next quarter – not a bad return for three months.  The FDIC also gave JPMorgan many subsidiaries.  Some of those subsidiaries may not have been on the banks books, and in fact may have belonged to the parent holding company, Washington Mutual Inc (WMI).  WMI filed a claim against the FDIC's receivership on 12/30/2008.  According to a Weil & Gotshal representative, the claim submitted to the FDIC was denied in late January 2009.

Page 9


SEC did not do its job; illegal short selling damaged WaMu


7/21/08: SEC bans “naked” short selling in certain financial stocks. Washington Mutual is not included on the list.


9/17/08: SEC bans “naked” short selling of all stocks.

9/18/08: SEC bans short selling of 799 financial companies, including Washington Mutual.

General resource on the surrounding economic legislation and SEC and FED actions:


Did the FDIC do their job properly after the seizure of Washington Mutual?

Sheila Bair, in a 60 Minutes episode which aired on March 8, 2009, said that the FDIC did not shutter big banks. Washington Mutual was a big bank and the fallout from its seizure was widely felt in the US markets and indeed around the world. Stockholders were essentially wiped out in this seizure, due to the fact that the FDIC permitted the deal to be written with no regard to provisions for the stockholders. Although it is unknown exactly what the total losses were, it is estimated it could be as high as $30 billion. Many of these stockholders were Pension Funds, large institutions, as well as individuals 401K's, IRA's and other private accounts. The question at this point is whether the FDIC acted appropriately in only getting 1.9 Billion dollars, and allowing the stockholders to be left out of the transaction, and completely out in the cold. Many institutions were severely impacted by the sale agreement the FDIC arranged. The sale agreement had far reaching, adverse effects both on portfolios and the market in general.

9-17-08: A WSJ article states that WaMu has hired Goldman Sachs to find a buyer of the bank.

9-18-08: WaMu's rating slips to a 4 and is placed on the FDIC's watch list, a fact kept secret at the time to prevent a self-fulfilling run on the bank. A 4 rating reflects financial, operational or managerial weaknesses that threaten a bank's financial viability.

9-19-08, Friday: FDIC talks with JPM about WaMu. (From JPM presentation on 2-26-09)

9-22-08, Monday: FDIC meets with JPM. (From JPM presentation)

9-24-08, Wednesday: 4 banks reportedly submitted bids/plans to FDIC by the deadline set by the FDIC:

FDIC Chairman Sheila Bair told reporters on Thursday that after an open process to find a buyer failed, the agency turned to its secretive auction process in which bidders place their offers on a secured website. The auction turned out to be not so secret when a media leak prompted early seizure of the bank. The "leak" has not been identified.

Which other organizations bid for WaMu, and the contents of those bids, have not been revealed by the FDIC. Here is an abbreviated timeline of what happened.

9-24-08, Wednesday 6:44PM: JPM submits bid to FDIC of $1,888M

9-25-08, Thursday: OTS seizes WaMu and gives it to FDIC

9-26-08, Friday: FDIC sells WaMu to JPM for $1,888,000,000.

2-26-09: JPM states that the WaMu transaction was 'very non-traditional'. (From shareholder presentation).

Did the FDIC do a fair and impartial auction?

Were all banks given the same information at the same time? By some reports JPMorgan knew of the auction 3 weeks prior. Did other banks have that same advantage? JPM was notified on Friday, 9-19 that they would get the bank. That was days before the auction officially began. Of note, JPMorgan raised approximately $11 Billion for the purchase, yet they managed to buy the bank for a mere $1.9 Billion. The auction permitted the banks to bid $0 for the bank, and totally disregard the stockholders and bondholders. Although stockholders and bondholders are not technically the FDIC's responsibility, was it wise or fair to totally disregard the interests of these stakeholders?

FDIC regulations as quoted from their official website:

12 U.S.C. 1821(d)
(i) maximizes the net present value return from the sale or disposition of such assets
(ii) minimizes the amount of any loss realized in the resolution of cases
(iii) ensures adequate competition and fair and consistent treatment of offerors


How Did JPMorgan Chase (JPM) Profit from the purchase of WaMu's banking assets for $1.888 Billion?

JPMORGAN CHASE Acquires the deposits, assets and certain liabilities of WASHINGTON MUTUAL’S banking operations

JPM's Bid For WaMu via FOIA Request

What Did JPM Purchase?

It is still not clear exactly what JPM purchased from the FDIC on 09/25/08, because their Purchase and Assumption agreement didn't disclose exactly what was sold, other than as stated in paragraph 3.1, "...all of the assets (real, personal and mixed, wherever located and however acquired) including all subsidiaries, joint ventures, partnerships, and any and all other business combinations or arrangements, whether active, inactive, dissolved or terminated, of the Failed Bank whether or not reflected on the books of the Failed Bank as of Bank Closing." This statement clearly did not address the possibility of joint ownership of assets by Washington Mutual Bank (WMB) and their holding company, Washington Mutual Inc. (WMI). The seizure of assets which were not on WMB's books leaves open the real possibility that some of those assets actually belonged either solely to WMI or were owned jointly and as such were not rightfully seized.

It appears that that Schedule 3.1a had been intended to be more specific regarding the assets sold. This section is missing, despite being referenced repeatedly in the version of the document posted initially on the FDIC's website.

An early rough draft was obtained by FOIA request:

What Did JPM Gain?

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 being too low; 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 9,200 employees and recently indicated they would cut another 2,800 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.


JPM's 10K, 12/31/08


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, (general business tax rate) this represents a tax savings of approximately $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? Due to the fact that 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.) The WMB acquisition would result in, a "stable, predictable earnings stream" due to retail customers.

 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. (Negative goodwill is a positive gain on a balance sheet due to gains that cannot otherwise be accounted for.)   The negative goodwill that remained after writing down non-financial assets was recognized as an extraordinary gain." 


JPM 10K for 12/31/08; p 26, note (d)


“Effective September 25, 2008, 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 in 2008.”

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?


So to sum it up, JPMorgan Chase acquired a massive branch and credit card network that augmented their footprint in areas where they were weak. For $1.9B, they acquired 2,239 branches in lucrative markets that would have cost many billions to construct themselves. They obtained an immediate $1.9B financial gain on the transaction, have a future tax savings of $10.85 Billion, and expect to make an additional $12 Billion in after tax profit over the next three years. And after that they are left with a profitable bank that will continue to generate billions of dollars of profits every year for the foreseeable future.

The question remains. Was this a fair auction? Did government regulators do their jobs properly? Was Washington Mutual fairly compensated for its bank?

Should Washington Mutual have been seized at all?

You be the judge.


Latest Developments and Links:

1. JP Morgan responsible for destruction of financial system:

2. WSJ FDIC memorandum:

3. Geithner, Paulson named in $200 billion lawsuit

4. -WAMU was in a lot worse shape in 2007:

5. Feds say WAMU WAS the cause of collapse:

7. JPM Shareholder Pamphlet::

8. WMI Documents:

9. Battle Brewing over Fire Sale of WaMu Banking Assets:

10 JPM Lawsuit against WMI:

11. NY Times Slams the OTS:


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