SAN FRANCISCO - The consolidation and reshaping of the U.S. financial industry landscape continued late last week, as JPMorgan Chase & Co. snapped up the assets of defunct Washington Mutual Inc.
WaMu - the nation's biggest savings and loan until last week when it was seized by federal regulators in the largest bank failure in U.S. history - had a small presence in the municipal bond market. Over the past decade, it served as senior manager on 10 issues, was a letter of credit provider on 16, and trustee on two. The deals were primarily small housing issues sold for housing developers.
For JPMorgan, which bought distressed Bear Stearns & Co. earlier this year, the purchase dramatically increases its deposit base and the number of customers it serves in key growth markets such as Florida, Arizona, Texas, and California.
"We add a whole bunch of states - California, Florida - and enhance states we're already in. We're building this franchise for the long term," JPMorgan Chase chief executive officer Jamie Dimon said in a conference call with investors Thursday night. "This makes us the largest depository in the United States of America."
WaMu had about $188 billion in retail deposits, though depositors were fleeing before the Office of Thrift Supervision and the Federal Deposit Insurance Corp. took over the bank. JPMorgan takes on the thrift's deposits, loans, and outstanding mortgage portfolio, but it did not acquire the bonded indebtedness of WaMu or its parent company.
JPMorgan paid just $1.9 billion for WaMu, though it did accept responsibility for a deteriorating $176 billion mortgage portfolio. It immediately wrote down $31 billion of that debt before taking it on its books and raised an additional $10 billion in an equity offering Friday morning to increase its capital ratios to match its new assets and liabilities.
Standard & Poor's and Fitch Ratings affirmed JPMorgan Chase's AA-minus ratings. Moody's Investors Service affirmed the bank's senior debt at Aa2, but assigned a negative outlook. Standard & Poor's affirmed its negative outlook.
However, the few bond issues with WaMu letters of credit should benefit from the transaction. The Orange County, Fla., Housing Finance Corp., for instance, served as conduit issuer on three deals with WaMu LOC backing worth a total of $32.7 million last year. The variable-rate demand obligations were sold for multifamily housing developers .
The developers sought an extra line of credit to cover the bonds earlier this year, when WaMu's credit ratings began to fall.
"We went back after they were issued and added additional credit enhancement from the Federal Home Loan Bank, so they should be okay," said Robert Detjen, vice chairman of CSG Advisors Inc. and a financial adviser to the Orange County housing agency. "I would think that the transaction with JPMorgan Chase would be good across the board for any credit that WaMu has extended."
