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[IMGCAP(1)]SEATTLE-Promising no impact on depositors or other customers, the Office of Thrift Supervision late yesterday seized Washington Mutual Inc. and flipped it to JPMorgan Chase & Co. for $1.9 billion. The fall from grace is being touted as one of the largest bank failures in US history, but word last night was the $307-billion thrift institution will be open for business today.

Seattle-based WaMu reported $307.2 billion in assets at the second-quarter close. At the last head count, it employed 43,198 workers in 2,239 retail branches and offices in 15 states. As a result, JPMorgan becomes the nation’s biggest bank by deposits.

In last night’s press release, the Office of Thrift Supervision said WaMu had racked up a net deposit loss of $16.7 billion as of Sept. 24. The federal agency said significant deposit outflows began Sept. 15 “because of adverse events in the financial markets.” The feds said there essentially was no time to “augment capital, improve liquidity or find an equity partner.” The feds seized WaMu after it became apparent it most likely would be unable to pay obligations and meet operating liquidity needs.

WaMu’s branches are open today and depositors have full access to all their accounts, according to the FDIC. JPMorgan’s purchase does not include claims by equity, subordinated and senior debt holders, the FDIC said. JPMorgan, which had its own investment bank value the mortgages, is betting the benefits from the remaining deposits outweigh the cost in loan losses.

[IMGCAP(2)]Earlier this month, WaMu’s board of directors replaced its long-time CEO Kerry Killinger, who in June stepped down after 17 years as chairman. He was replaced by Alan Fishman, former chairman of New York City-based Meridian Capital Group. Until 2007, Fishman was Killinger’s chief rival as head of the nation’s second-largest thrift, Philadelphia-based Sovereign Bank.

WaMu’s financial picture shows $188.3 billion in total deposits and $82.9 billion in total borrowings, with $58.4 billion as advances from the Federal Home Loan Bank and $7.8 billion of subordinated debt. Single-family loans held for investment total $118.9 billion, including $52.9 billion in ARMs and $16.05 billion in subprime mortgage loans. Another $53.4 billion is tied to home equity lines of credit. Credit card receivables total $10.6 billion. WaMu’s loan servicing book totals $689.7 billion, of which $442.7 billion is third-party business and $26.3 billion represents subprime mortgage loans. Its non-performing assets total $11.6 billion, including $3.23 billion in ARMs and $3 billion for subprime.

Since the early 1990s, WaMu has built itself into the nation’s largest savings and loan association. It started out with organic expansions followed by a series of key acquisitions of retail banks and mortgage companies. The hard push took place between 1996 and 2002. In October 2005, it moved into the credit card-lending business by acquiring Providian Financial Corp.

The Office of Thrift Supervision says WaMu started proactively changing its business strategy in late 2006 to “respond to declining housing and market conditions.” The measures included tightening credit standards, eliminating purchasing and originating subprime mortgage loans and halting underwriting option ARMs and state income loans. In December 2007, WaMu slashed 2,600 employees, closed 190 home loan centers and sales offices and closed nine loan processing and calls centers to repackage its Home Loans business and reduce further risk.

WaMu Inc., the top-tier company, pumped $6.5 billion into the banking group since December 2007. The bank “met the well-capitalized standards through the date of receivership,” the feds said in supplemental information about the takeover.

The banking group posted a $6.1 net loss for three quarters, ending June 30. But in the second quarter, management said the bank’s credit quality had “deteriorated and it might incur up to $19 billion in losses on its single-family home loan portfolio. Loan loss provisions increased to $6 billion by the end of the second quarter, or nearly double its Q1 total.

Separately from the acquisition, JPMorgan announced plans to raise $8 billion by selling common stock. Moody’s reacted by lowering its outlook to “negative” but maintained the firm’s Aa2 rating.

In March, JPMorgan paid $10 a share for Bear Stearns, which was at risk of bankruptcy. Also that month, it made a $4 per-share offer for WaMu that was rejected. The financial crisis also has put Lehman Brothers Holdings Inc. and IndyMac Bancorp out of business and led to the rescue of Merrill Lynch & Co.

JPMorgan’s purchase expands Chase’s consumer branch network into the California, Florida and Washington state and creates the nation’s second-largest branch network. Chase now has 5,400 offices with about $900 billion in deposits, more than any other bank in the nation. The branches and credit cards will be converted to the Chase brand by 2010, JPMorgan said in a release, adding that less than 10% of branches in the combined network are in overlapping markets.

In conjunction with the acquisition, JPMorgan Chase said it will be marking down the acquired loan portfolio by approximately $31 billion, essentially its estimate of remaining credit losses related to the impaired loans. Despite that, the acquisition WaMu acquisition is expected to be immediately accretive to earnings and to add more than 50 cents per share in 2009. The company said it expects to incur pretax merger costs of about $1.5 billion while achieving annual pretax cost savings of approximately $1.5 billion by 2010, net of significant investments in the business.

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