JPMorgan-Washington Mutual
By Dan Freed
Objective: To grow retail banking presence.
Impact: JPMorgan bought the assets of Washington Mutual from the Federal Deposit Insurance Corp. for $1.9 billion on Sept. 26, 2008, leaving behind about $20 billion in debt.
The deal gave JPMorgan branches on the West Coast for the first time, and expanded its presence in several markets, particularly Florida. However, the business benefits have yet to materialize because of the still weak economy.
Impact: JPMorgan bought the assets of Washington Mutual from the Federal Deposit Insurance Corp. for $1.9 billion on Sept. 26, 2008, leaving behind about $20 billion in debt.
The deal gave JPMorgan branches on the West Coast for the first time, and expanded its presence in several markets, particularly Florida. However, the business benefits have yet to materialize because of the still weak economy.
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Rather than building up its base, JPMorgan has lost deposits since the deal closed. Rochdale Securities analyst Richard Bove attributes virtually all of these lost deposits to the WaMu business. He says commercial banks typically lose deposits when they buy thrifts because thrifts pay higher rates to depositors.
The biggest benefit from the deal so far stems from an accounting rule that allows JPMorgan to write down the loans it acquired and then reap profits as borrowers pay their debts. JPMorgan has said it expects to earn $29.1 billion from these loans before taxes and expenses, according to Bloomberg News. JPMorgan is also facing legal challenges from creditors related to the status of billions in WaMu holding company assets. If JPMorgan were to win the dispute, it would provide additional value for shareholders.
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