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U.S. seizes WaMu, plans asset sale to J.P. Morgan

Last update: September 25, 2008 - 10:28 PM

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In what is by far the largest bank failure in U.S. history, federal regulators seized Washington Mutual Inc. and struck a deal to sell the bulk of its operations to J.P. Morgan Chase & Co.

The closing represents the demise of what once was the largest U.S. thrift but came to symbolize many of the worst excesses of the mortgage boom. Federal regulators said WaMu has suffered an exodus of $16.7 billion in deposits since Sept. 15, leaving the Seattle thrift "with insufficient liquidity to meet its obligations." As a result, WaMu was in "an unsafe and unsound condition to transact business," according to the Office of Thrift Supervision.

While the exact structure of the transaction wasn't immediately known, J.P. Morgan is expected to acquire Washington Mutual's deposits and branches, as well as other operations.

The deal isn't expected to result in any hit to Federal Deposit Insurance Corp. (FDIC) funds, according to a person familiar with the arrangement. But it's likely that another arm of government would have to pick up the tab. Some analysts have worried that a WaMu failure could cost more than $20 billion.

Federal regulators have been heavily involved in orchestrating the transaction, which comes as Washington Mutual grapples with its bad mortgage loans. Regulators were hoping to fend off a collapse of WaMu, which, with more than $300 billion in assets, would mark by far the largest banking failure in U.S. history.

Under the deal, New York-based J.P. Morgan, which has long coveted Washington Mutual as a way to secure a footprint on the West Coast, will assume most of the thrift's deposits and branches, as well as some other operations.

Unlike many of the 12 bank failures that the FDIC has overseen this year, the J.P. Morgan-WaMu deal isn't expected to affect the agency's deposit-insurance fund. It wasn't immediately clear how the transaction would be structured to avoid the fund taking a hit.

WALL STREET JOURNAL

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