BREAKING NEWS: The US Government's Federal Deposit Insurance Corp. (FDIC) seized WaMu on Thursday, and then sold the thrift's banking assets to JPMorgan Chase & Co. for $1.9 billion. Seattle-based WaMu, which was founded in 1889, is the largest bank to fail by far in the country's history. The shotgun acquisition brokered by U.S. Government of assets, deposits and certain liabilities of Washington Mutual’s banks by JPMorgan Chase will leave existing Washington Mutual Inc. (Holding Company)'s common and preferred shareholders with nothing.

Here are the key terms of acquisition of Washington Mutual’s banks from FDIC acting as receiver (according to the JPMorgan Chase presentation published on Sep 25, 2008):

• Transaction: JPMorgan Chase to acquire:

- Substantially all of the assets of Washington Mutual’s banks

- All of the deposits and certain liabilities of Washington Mutual’s banks

Transaction does not include:

- Assets and liabilities of Washington Mutual Inc. (Holding Company) --> this means existing common stock shareholders and preferred shareholders of Washington Mutual Inc. (WM) will get NOTHING!

- Unsecured senior debt, subordinated debt and preferred of Washington Mutual’s banks

• Consideration: $1.9bn cash payable to FDIC --> this is a steal. Existing shareholders must be "weeping" on the floor!
  
• Expected capital raise: $8.0 billion of common equity
• Divestitures: None
• Approvals: All key approvals received
• Credit rating: Expect ratings to be affirmed

According to JPMorgan Chase, the deal was done because of the following reasons:

• Strategic Fit
  
  • Greatly enhances retail banking platform in attractive markets
  • Combined deposits of $911 billion and 5,410 branches at close
  • Expanding into attractive new markets (CA + FL)
  • Increases market share in existing largest fast-growing markets (NY, TX, IL, AZ, CO, UT)
• Financially Compelling
  
  • Accretive immediately; should be substantially so in future
  • Asset write-downs reduce risk to volatility in future earnings
  • Allows significant margin for error
  • Opportunity to grow revenue and realize significant cost savings
  • Ability to bring expanded Chase products and services to WaMu branches
  • Drive efficiencies in branch network and back office
  • JPMorgan Chase maintains strong capital and liquidity positions
  • Retail deposits add to stable funding base
• Ability to execute
  
  • Proven capabilities with success in Bank One/Chase and Bank of New York transactions
  • Little overlap with Bear Stearns integration
• Business Banking
  
  • Significant opportunity to expand Business Banking as WaMu had limited market penetration
  • Chase has 5x WaMu’s average Business Banking checking balances
  • Chase has 40% more fee income per customer
  • Plans include expanded product offering and build out of business bankers/relationship managers
• Commercial Banking
  
  • Retail branch presence provides the basis for a strong middle market franchise
  • Washington Mutual’s retail presence in select attractive markets combined with Chase’s proven leadership provides significant opportunity to enhance Chase’s Middle Market business
  • Over 5,000 Middle Market companies for Chase to pursue as customers in Los Angeles, San Diego, San Francisco, Seattle, and Portland
  • Incremental capabilities from Washington Mutual’s multi-family lending business, a niche product offering with a good risk profile
  • Ability to offer Treasury Services products to new customer base
• Leader in retail banking and deposit gathering
  
• Adds branch presence in new markets
  
• Combined retail franchise has leading market share in key states
  
• Top 3 ranking in the country’s largest MSAs
  
• Footprint covers 46% of expected population growth – up from 18%
  
• Transaction further strengthens the entire franchise

JPMorgan Chase anticipated the following cost savings and merger costs:

• Cost savings
  • Projected cost savings of approximately $1.5 billion, or approximately 15%-20% of Washington
• Mutual’s non-interest expense base, net of significant investments in the business
  • Majority of synergies achievable by end of 2010
  • Majority of branch combinations to be completed by end of 2010
• Merger costs
  • Estimated initial transaction-related costs of approximately $1.5 billion pre-tax
  • Severance

Source: JPMorgan Chase Investor Presentation published on Sep 25, 2008: Acquisition of assets, deposits and certain liabilities of Washington Mutual’s banks by JPMorgan Chase

OTHER IMPORTANT DETAIL ON THIS DEAL:

• Because of WaMu's souring mortgages and other risky debt, JPMorgan plans to write down WaMu's loan portfolio by about $31 billion -- a figure that could change if the government goes through with its bailout plan and JPMorgan decides to take advantage of it. (Source: Associated Press)
• JPMorgan is adding $176 billion in mortgage-related assets and will write down the value of those securities and other portfolios by $31 billion. (Source: Bloomberg)
• The seizure by the government means shareholders' equity in WaMu was wiped out. The deal leaves private equity investors including the firm TPG Capital, which led a $7 billion cash infusion in the bank this spring, on the sidelines empty handed. (Source: Associated Press)
• JPMorgan Chase said it was not acquiring any senior unsecured debt, subordinated debt, and preferred stock of WaMu's banks, or any assets or liabilities of the holding company, Washington Mutual Inc. JPMorgan also said it will not take on the lawsuits facing the holding company. (Source: Associated Press)
• JPMorgan Chase raised $10 billion on Sep 26, 2008 in a stock sale to cover writedowns and losses after taking on deposits and branches of Washington Mutual Inc., the biggest U.S. savings and loan, for $1.9 billion. The shares were sold for $40.50, or 6.8 percent less than yesterday's closing price of $43.46. New York-based JPMorgan sold 246.9 million shares, according to a statement today. JPMorgan, now the largest U.S. bank by deposits, said the capital infusion would offset an estimated $8 billion of credit provisions, writedowns and losses in the third quarter. The WaMu acquisition will force JPMorgan to set aside an additional $2 billion to cover bad loans on the failed thrift's books. Chief Executive Officer Jamie Dimon said the deal would boost earnings per share by 50 cents in 2009. JPMorgan Chase said it may sell another 37 million shares to cover excess demand. (Source: Bloomberg)
• Biggest Failure of U.S. Bank. WaMu was taken over by regulators yesterday in the biggest U.S. bank failure after customers of the Seattle-based lender withdrew $16.7 billion from accounts since Sept. 16. (Source: Bloomberg)