Will WaMu Bank Failure Affect Stockholders
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What happens now, will the shareholders lose out?
The FDIC took over WaMu due to its failure, Washington Mutual was heavily invested in subprime home mortgages. Declining home values left WaMu seeking more capital to stay afloat. Incurring more debt by borrowing more money, the bank lost its footing when large sums of depositors withdrew money out of their accounts.
Once the FDIC stepped in they sold the bank to JP Morgan Chase for 1.9 Billion dollars, since for JP Morgan this is an asset only acquisition. Shareholders will lose all the money they had invested in the Nasdaq (WM).
Where does this leave private equity investors?
According to Welt News Online the deal leaves private equity investors including the firm TPG Capital, empty handed without anything to show for the purchase of equity securities they bought totaling $7 billion invested in WaMu.
Watch the Video on how Wamu's bank failure will affect financial institutions
JPMorgan Chase is now the second largest bank with rising shares for investors
According to the Wall Street Journal Online, JPMorgan is now the nation's largest deposit-gatherer with $911 billion of deposits, outranking Citigroup Inc.'s $804 billion and B of A Corp.'s $785 billion. J.P. Morgan previously ranked as the third-largest with $723 billion, before buying WaMu.
The deal also pushes J.P. Morgan to the second spot as measured by its 5,410 branches, ranking behind Bank of America and leaping over both Wells Fargo & Co. and Wachovia Corp.
J.P. Morgan infused its business by selling $10 billion of common stock, investors bid up the JPMorgan's shares by 11%. When JP Morgan sold its stock in conjuction with the WaMu deal shares rose $4.78, to $48.24 in New York Stock Exchange composite trading.
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Find out how to protect your money from bank failure
Having options on how best to protect your money will help with future decisions when it comes to your investment portfolio. The seizure by the government means shareholders' equity in WaMu was wiped out. The deal leaves private equity investors on the sidelines empty handed.
When it comes to asset protection for your basic bank accounts, including checking and savings they are insured and protected by The Federal Deposit Insurance Corporation up to $100,000 at all banks, for sums lost due to theft, bank closings or failures. Brokerage accounts carry their own protections in case of failure.
Brokerage accounts have protections in place in case of bank failure, with up to $500,000 in coverage (SIPC)The Securities Investor Protection Corporation insures brokerage accounts.
What do we learn?
That it is important to diversify your investment strategy, this can help to protect you from shifts in the market.
Research and Resources
JP Morgan Chase Buys WaMu Assets After FDIC Seizure (SFGate.com)
What Happens to WaMu Depositors, Stockholders (Seattle Times)
Welcome WaMu - From JP Morgan Chase (Official Bank Website)
FDIC Bank Information for Washington Mutual Bank (Official FDIC Website)
FDIC Press Release on JP Morgan Chase Acquisition of WaMu (Official FDIC Website)
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Comments
More banks are expected to fail in the coming near future, which will only make for more mergers and buyouts.
I could almost read you instead of the Times! Great job again.
When it comes to investing in stocks one needs to make sure to look at other sectors and see if they will have a impact on your portfolio.
multimastery says:
15 months ago
Very informative hub RA! Well unfortunately the stock holders lost all their money vested in WaMu -- Banks are going down the tube, stocks are risky! Bad Business. And it's good you memtioned the bit about having FDIC-Insurance for personal deposits because this will protect everyday citizens from losing their money in the unfortunate incident that their bank goes belly-up too (at least it protects up to $100,00 per account which is definitely enough for most people).