JP MORGAN Chase raised $10 billion in new capital following a $1.9 billion deal to take on the deposits and branches of Washington Mutual (WaMu), the struggling $307 billion savings-and-loans giant whose collapse overnight was the largest bank failure in US history.
JP Morgan acquired WaMu from the US Office of Thrift Supervision shortly after federal regulators seized the lender, a development that came after depositors withdrew $16.7 billion of their money in 10 days as its funding position worsened.
WaMu shareholders were wiped out by the transaction.
Analysts at Merrill Lynch said JP Morgan got "very attractive terms" in the deal.
Having rescued Wall Street investment bank Bear Sterns in a fire-sale six months ago, the transaction is JP Morgan's second swoop for troubled financial assets since the credit crunch in international money markets intensified this year.
The deal enables JP Morgan Chase to greatly increase its branch network, expanding into California, Florida and Washington state, and extending its presence in states such as New York, Texas and Illinois.
In a mark of the depth of the reordering under way within US banking, JP Morgan will become the largest US depository institution with more than $900 billion in deposits following its acquisition's of WaMu's $181.9 billion deposit holdings.
"The housing market downturn had a significant impact on the performance of WaMu's mortgage portfolio and led to three straight quarters of losses totalling $6.1 billion," said Office of Thrift Supervision director John Reich.
The regulator said pressure on WaMu intensified in the last three months as market conditions worsened, culminating in a big outflow of deposits since the start of last week.
"With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business.
"The Office of Thrift Supervision closed the institution and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. The FDIC held the bidding process that resulted in the acquisition by JPMorgan Chase."
JP Morgan will write down by $31 billion the value of WaMu's $181.9 billion loan portfolio, which represents remaining credit losses related to the impaired loans. However, JP Morgan said it expected the deal to be immediately accretive to its profits and to add more than 50 US cents per share to earnings in 2009.
As WaMu became the latest casualty of the disruption roiling Wall Street, a tentative agreement between Democrats and Republicans on the Bush administration's proposals for a $700 billion bailout of the financial sector fell apart at the White House.
JP Morgan, which said as the transaction was made public that it planned to raise $8 billion, will use the $10 billion in new capital to maintain a strong capital position. The fundraising was priced at $40.50 per share - almost 7 per cent less than the bank's closing price of $43.46 on Thursday before the deal was made public. At noon yesterday in New York the stock was trading 2.39 per cent higher at $44.50.
The fundraising by JP Morgan follows a $10 billion capital infusion this week at Goldman Sachs, which raised money from billionaire Warren Buffett.
