Leading US savings bank fails

26/09/2008| IslamWeb

The US government has closed one of the country's largest savings banks, the latest banking failure in the economic crisis that has engulfed financial institutions across the US and sparked global turmoil.

 

Regulators promised customers of Washington Mutual, known as WaMu, they could expect business as usual on Friday after JP Morgan Chase bought the bank for $1.9bn in a last minute deal.

 

Washington Mutual had been seen as heavily exposed to the mortgage crisis sweeping the country, with its stock price plummeting 95 per cent from a 52-week high of $36.47 to close at $1.69 on Thursday.

 

The bank was shut by the federal Office of Thrift Supervision (OTS), and the Federal Deposit Insurance Corp (FDIC) was named receiver.

 

"With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business," the OTS said.

 

'Seamless transition'

 

In a deal announced late on Thursday, JP Morgan Chase bought the bank, the second time in six months the firm has taken over a major financial institution paralyzed by bad mortgage debts.

 

Stella Blair, chairman of the FDIC, offered assurances that all customers of Washington Mutual, which billed itself as the "bank for everyday people, focusing on middle-market consumers and small businesses," would be protected.

 

"For all depositors and other customers of Washington Mutual Bank, this is simply a combination of two banks," Blair said of the deal with JP Morgan Chase.

 

"For bank customers, it will be a seamless transition. There will be no interruption in services and bank customers should expect business as usual come Friday morning."

 

Bail-out plan

 

The purchase of Washington Mutual which had about $188bn in deposits, creates the largest US depository institution with more than $900bn in customer deposits, JPMorgan Chase said.

 

"Our people have worked hard to build a strong franchise and balance sheet - making this compelling transaction possible," Jamie Dimon, chairman of JPMorgan Chase, said in a statement.

 

Earlier this year, the banking giant also took over Bear Stearns, which had been one of the most high-profile victims of the US subprime property crisis.

 

The US government has been trying to tackle the crisis with a proposed $700bn bail-out plan to buy up bad debt, but the plan has been stalled by disagreement over its terms and the interjection of presidential campaign politics.

 

Even as congress struggled to agree the plan, John McCain, the Republican presidential candidate, endorsed a new Republican plan that differs markedly from the one that had been under deliberation, prompting Democrats to accuse him of sabotaging the deal.

 

PHOTO CAPTION

 

A vehicle drives by a Washington Mutual bank in Palo Alto, Calif., Thursday night, Sept. 25, 2008.

 

Al-Jazeera