After Washington Mutual Inc. became the biggest bank failure in U.S. history Thursday, JPMorgan Chase & Co. swooped in to acquire the fallen bank's assets for $1.9 billion in an Federal Deposit Insurance Corporation-supervised bidding process.
The FDIC had taken over the bank Thursday evening. Like IndyMac Federal Bank, FSB, which went bust in July, Washington Mutual had suffered a run on deposits in the last week by customers who worried their money would be insecure after losses from defaulted mortgages weakened the bank. Shareholders drove the stock price down to $1.69 Thursday, a drop of almost 60 percent in the last week.
JPMorgan was represented by Sullivan & Cromwell corporate partners Mitchell Eitel and William Farrar. Eitel had previously advised on the $58 billion merger of JPMorgan and Bank One in 2004.
"This deal makes excellent strategic sense for our company and our shareholders," JPMorgan CEO Jamie Dimon said in a statement released Friday.
The acquisition included WaMu's banking assets and qualified financial contracts. However, JPMorgan said it would not acquire claims by equity, subordinated and senior debt holders. The bank beat out three other auction competitors, according to the FDIC.
Cravath, Swaine & Moore represented JPMorgan Securities Inc. in a $10 billion offering of its common stock Friday. The Cravath team was led by corporate partner William Fogg and senior attorney G. Douglas Johnson.
The WaMu deal is the latest in JPMorgan's acquisition of distressed financial institutions, after the company bought The Bear Stearns Companies Inc., in March for $236.2 million.
With $307 billion in assets, WaMu's is now the largest bank to be taken over by the FDIC, ahead of Continental Illinois National Bank & Trust Co., worth $40 billion when it was taken over in 1984. IndyMac came in third at $32 billion.
The FDIC consoled the Seattle-based bank's patrons, promising that their deposits were fully protected.
"For all depositors and other customers of Washington Mutual Bank, this is simply a combination of two banks," said FDIC Chairman Sheila Bair. "WaMu's balance sheet and the payment paid by JPMorgan Chase allowed a transaction in which neither the uninsured depositors nor the insurance fund absorbed any losses."
While depositors may be safe, the bank's former lawyers are likely to take a hit. On Sept. 16 The Am Law Daily chronicled the firms that would lose the most business if the bank fell.
