THE BASIS POINT

Chase Buys WAMU for $1.9b After It Fails, Gets WAMU & Bear For $4.1b

After its bargain $1.9b acquisition of WAMU’s deposits and retail bank branch network today, JP Morgan Chase is solidified as a dominant force amidst the global banking chaos. This follows their $2.2 billion acquisition of investment banking giant Bear Stearns on May 29.

The WAMU deal came after the FDIC seized WAMU last night following a 10-day run on the bank since September 16 during which time depositors withdrew $16.7b. FDIC Sheila Bair led the takeover which even left WAMU management in the dark at times. I think it was a great move on her part to get JP Morgan involved because everybody wins:

Depositors have a seamless transition to JP Morgan Chase—even WAMU’s website this morning said JP Morgan Chase was backing all deposits up to $100k per FDIC rules;

The FDIC doesn’t have to deplete its already depleted fund to back the failing WAMU and its depositors;

JP Morgan gets a great deal that ups their retail banking footprint to 5400 branches and $900b in deposits, and adds branches in states where they were weak like California, Washington and Florida. This deposit figure puts them ahead of all other US banks.

WAMU doesn’t get left (entirely) with the stigma of a failed bank because, even though it is officially the biggest bank failure in US history, the public perception of the JP Morgan Chase takeover will overshadow that—as long as people feel their assets are safe, which they do, they won’t remember about the failure much.

There is one WAMU stigma that will also probably disappear in the storm of stormy banking headlines, which is that WAMU CEO Alan Fishman who could get $13.65m for 18 days of work. He had just gotten there, and now he stands to make eight figures at the same time as politicians are putting together a $700b taxpayer-funded bank bailout. No wonder taxpayers are pissed off.

As for JP Morgan Chase, they will be the poster child for success in a post Glass-Steagall world.

Glass Steagall was banking legislation that had a provision prohibiting commercial and investment banks from being under one roof. After the Gramm-Leach-Bliley Act repealed that provision in 1999, the Chase Manhattan and JP Morgan merger came shortly after in 2000.

Many argue that banking consolidation led to the subprime mortgage mess and ensuing banking crisis, but it will be harder to defend that claim with the extraordinarily rare success of JPM (and demise of independent investment banks and retail banks) in this environment.