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.
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
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.
