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WaMu's Failure: Why It's Unusual, What's Next

Last night's failure of Washington Mutual (WM - Get Report) was a surprise in three respects.

First, JPMorgan Chase (JPM - Get Report) acquired all of the failed thrift's branches deposits, including balances exceeding FDIC insurance limits. With so much in the way of option-payment adjustable-rate mortgages and other low-quality mortgage loans on the books, it's a bit of a miracle for the FDIC's insurance fund that JPMorgan paid $1.9 billion for all of Washington Mutual's branches, deposits and loans.

JPMorgan announced it would write down the acquired loans by about $30 billion and raise $10 billion in new capital by offering 246.9 million shares of common stock at a price of $40.50. JPMorgan shares were trading at $44.02 early Friday afternoon.

Washington Mutual had projected losses of $19 billion on its mortgage portfolio. JPMorgan's move to take its lumps right now will hopefully wipe the slate clean and allow the New York holding company to greatly expand its presence in key states, including California and Florida.

Second, Washington Mutual and its regulator, the Office of Thrift Supervision, were able to keep the thrift's $16.7 billion run on deposits off the front pages for nearly two weeks -- even with the failure of Lehman Brothers (partially acquired by Barclays PLC (BCS)) and ratings downgrades of Washington Mutual's debt deeper into junk status.

Third, the Office of Thrift Supervision closed WaMu on a Thursday night. All other 2008 bank failures have been announced on Friday nights, allowing a weekend for transition of branch operations to acquiring institutions.

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