Washington Mutual Finally Fails: Prediction Markets Right
It took a while but the bank atop online prediction market intrade.com most likely to fail, Washington Mutual, finally did. It became the largest bank to do so Thursday night as federal regulators seized the bank and quickly turned assets over to JP Morgan.
This is the second time in six months that JPMorgan Chase has taken over a major financial institution crippled by bad bets in the mortgage market.
The deal will cost JPMorgan Chase $1.9 billion, and the bank said in a statement it planned to write down WaMu's loan portfolio by approximately $31 billion. JPMorgan Chase, which acquired Bear Stearns Cos. last March, also said it would sell $8 billion in common stock to raise its capital position.
The Federal Deposit Insurance Corp., which insures bank deposits, said it would not have to dip into the insurance fund as a result of the seizure. There had been concerns that the fund, which took a big hit after the seizure in July of IndyMac Bank, could be depleted by a WaMu seizure.
Earlier in the week, Gambling911.com reported on how intrade listed WaMu with a 40 percent chance of failure. With a government bailout of Wall Street and the banking sector looming and looking like a strong possibility at that time, it appeared as if Washington Mutual could be acquired without US government intervention.
A seizure of WaMu has been widely anticipated for some time because of the company's heavy mortgage-related losses. It has seen its stock price plummet 95 percent from a 52-week high of $36.47 to its close of $1.69 Thursday, and on Wednesday, it suffered a ratings downgrade by Standard & Poor's that put it in danger of collapse.
WaMu "was under severe liquidity pressure," FDIC Chairman Sheila Bair told reporters in a conference call.
"For all depositors and other customers of Washington Mutual Bank, this is simply a combination of two banks," Bair said in a statement. "For bank customers, it will be a seamless transition. There will be no interruption in services and bank customers should expect business as usual come Friday morning."
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Jagajeet Chiba, Gambling911.com
