Thursday, September 25, 2008

Washington Mutual and JP Morgan...

Wow, in a day with less drama in Washington the Washington Mutual news would be the story of the day.

"JPMorgan Chase & Co., the third- biggest U.S. bank by assets, agreed to acquire Washington Mutual Inc., the savings and loan facing $19 billion in mortgage- related losses whose market value halved in two weeks, the Office of Thrift Supervision said.

WaMu in March rebuffed a takeover offer from JPMorgan that WaMu valued at $4 a share. (that wasn't terribly bright in retrospect).

``JPMorgan is getting a steal compared with what they were going to pay,'' said Scott Adams, a pension and investment analyst at the American Federation of State, County and Municipal Employees in Oakland, California, which owns WaMu shares. ``It's very tragic.''

WaMu had about 2,300 branches and $182 billion of customer deposits at the end of June. Its $310 billion of assets dwarf those of Continental Illinois Corp., previously the largest failed bank, which had $40 billion ($83 billion in 2008 dollars) when it was taken over in 1984.

WaMu was the second-biggest provider of option ARMs, behind Wachovia, with $54 billion held in its portfolio in the first quarter, according to Inside Mortgage Finance. "

I think the comment from the analyst at the pension company is interesting. This is how the cycle completes itself -

* consumer A over pays for a home

* as rates adjust, consumer A can't make the payments

* the bank can't refinance it's failing portfolio containing consumer A's mortgage

* eventual the deposits are sold to JP Morgan

* Now consumer A is behind on his mortgage and your safe pension was invested in Washington Mutual shares that are now worthless.

It should be interesting watching Wachovia tomorrow.

Research In Motion (the maker of the Blackberry) reported a very weak outlook last night that should be a signal of weak corporate spending for the balance of 2008 and 2009. It's difficult to tell how much of this weakness is due to the iPhone and Google's new phone, but the concern that corporate America is putting the brakes on spending should cause alarm.

Media appearance -

I had the pleasure of appearing on the news at noon with our local CBS affiliate. The video's online - thanks for the opportunity.

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