WaMu becomes biggest bank to fail in US history

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(Agencies)
Updated: 2008-09-26 15:58

NEW YORK -- As the debate over a $700 billion bank bailout rages on in Washington, one of the nation's largest banks, Washington Mutual Inc., has collapsed under the weight of its enormous bad bets on the mortgage market.

A Washington Mutual (WaMu) bank branch is seen in New York City in this September 17, 2008 file photo. JPMorgan Chase & Co has acquired certain assets of Washington Mutual Inc for $1.9 billion after the large savings and loan was closed by regulators on September 25, 2008. [Agencies]

The Federal Deposit Insurance Corp. 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. Its $307 billion in assets eclipse the $40 billion of Continental Illinois National Bank, which failed in 1984, and the $32 billion of IndyMac, which the government seized in July.

One positive is that the sale of WaMu's assets to JPMorgan Chase prevents the thrift's collapse from depleting the FDIC's insurance fund. But that detail is likely to give only marginal solace to Americans facing tighter lending and watching their stock portfolios plunge in the wake of the nation's most momentous financial crisis since the Great Depression.

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.

"We're in favor of what the government is doing, but we're not relying on what the government is doing. We would've done it anyway," JPMorgan's Chief Executive Jamie Dimon said in a conference call Thursday night, referring to the acquisition. Dimon said he does not know if JPMorgan will take advantage of the bailout.

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