Washington Mutual was seized by the Federal Deposit Insurance Corporation (FDIC) Thursday evening, in what CNN Money is calling the biggest bank failure in US History. It appears as though JPMorgan Chase & Co. will acquire Washington Mutual for $1.9 billion. The deal was brokered to have JPMorgan Chase take over the company to avoid depleting the FDIC insurance fund, which is not expected to contribute any money in the deal.
What does this mean to Washington Mutual Customers?
This deal combines the operations of two banks and most customers should be completely unaffected by this deal. Friday morning should be the same as any other day and customers should still be able to access funds and maintain their normal banking privileges. Customers should not panic as the only thing really happening is a change on the letterhead on their statements.
Washington Mutual is also covered by FDIC insurance, but since the bank was basically absorbed by JPMorgan Chase, the FDIC insurance will not be used. Stockholders and some bond holders will lose the entirety of their investments.
This deal saves taxpayer money
Because the sale of Washington Mutual was brokered by the FDIC, the bank wasn’t allowed to fail to the point that the FDIC insurance was used. This could have cost taxpayers nearly $30 billions of dollars and depleted the FDIC deposit insurance fund. Instead, JPMorgan Chase purchased the bulk of Washington Mutual, including the bank’s deposits and loans, and it’s risky mortgage portfolio, which played a large role in WaMu’s failure.
It’s good to be WaMu’s CEO. According to the New York Times (update: this article now requires free registration to read), Washington Mutual’s CEO, Alan Fishman, who has been on the job for less than three weeks, is eligible for $11.6 million in cash severance and will get to keep his $7.5 million signing bonus.
OK, it’s really not good to be the Alan Fishman right now. He does get a lot of money out of his contract, but it really has to be heartbreaking to see your company falter so soon after taking the helm.