Washington Mutual, in the space of 24 hours has become America's largest ever bank failure, seized by regulators and sold to JPMorgan for $!.9bn. The rescue is the second by JPMorgan to help the US taxpayer avoid shelling out for assuming $31bn in losses.
The Federal Deposit Insurance Corporation protected WaMu' account holders to a $100,000 limit. Additional deposits are guaranteed by JPMorgan. Shareholders and bondholders are not likely to feel so well. Branches in New York and Chicago are likely to feel the cold as an expected 10% of WaMu's branches are closed.
This institution was a big question mark about the health of the deposit fund,” Sheila C. Bair, the chairwoman of the F.D.I.C., said on a conference call Thursday. “It was unique in its size and exposure to higher risk mortgages and the distressed housing market. This is the big one that everybody was worried about.”
Bank seizures by regulators usually occur on Fridays. WaMu's took place on Thursday due to the rapidly deteriorating state of the company's finances.
Not even hiring Goldman Sachs to help look for a bidder saved the bank. Massive exposure to the subprime debacle meant that none of the four rumoured bidders could make the figures add up.
Showing posts with label FDIC. Show all posts
Showing posts with label FDIC. Show all posts
Friday, 26 September 2008
Thursday, 25 September 2008
Former FDIC Chairmans Worthy Opinion on Credit Crunch
As the U.S. faces major reform of its financial industry, the question on the minds of many consumers is "how will this affect me?" It's also a question that is very commonly on the minds of most board members who are seeing unprecedented drops in their company's stock value in the financial markets. TK Kerstetter, president & CEO of Board Member Inc., which publishes Corporate Board Member magazine and its sister publication, Bank Director magazine, sat down with former FDIC chairman, L. William Seidman to discuss the current market crisis and how it will affect the entire banking industry. Corporate Board Member's web editor, Laura Finn, also interviewed James C. Woolery, partner with Cravath, Swaine & Moore LLP, to discuss what in his opinion caused the crisis, the impact of the government bailouts, bankruptcies and mergers on the board and its global ramifications.
According to Seidman, who states that as much as one year ago he warned about the dangers of Fannie Mae and Freddie Mac and the risk of a "major disaster," the nation has for a long time been running at a weakened state where credit is concerned. He said the biggest question now that has not yet been addressed is "what do we do about changing the system so it doesn't happen again?" Seidman also states that since the U.S. is part of a global financial system, the Wall Street crisis directly affects the financial institutions of the developed countries around the world.
Woolery believes liquidity issues and a failure of financing in the housing industry ultimately caused the financial crisis and that the recent Lehman Brothers' bankruptcy played a major role in the breakdown in the financial industry. He also warns that one of the side effects from the crisis will be that funds will be less available for borrowers which will affect the general economy and corporate strategy since the banking industry will not have extra funds to help support new businesses. According to Woolery, one lesson that boards should learn from this experience is that they need to push management teams to address risk head on instead of hoping and waiting until things get better. If they decide not to take action, they should be well informed, as it is their job to push management to make the type of difficult decisions that are in the best interest of the company.
"One of the benefits of our websites and online communications are their ability to respond immediately to critical issues affecting board members between both Corporate Board Member and Bank Director," said Kerstetter. "Our interview with Bill Seidman, who is arguably one of the most knowledgeable experts in the banking and financial markets, will help boards and management react immediately to issues that affect their companies."
According to Seidman, who states that as much as one year ago he warned about the dangers of Fannie Mae and Freddie Mac and the risk of a "major disaster," the nation has for a long time been running at a weakened state where credit is concerned. He said the biggest question now that has not yet been addressed is "what do we do about changing the system so it doesn't happen again?" Seidman also states that since the U.S. is part of a global financial system, the Wall Street crisis directly affects the financial institutions of the developed countries around the world.
Woolery believes liquidity issues and a failure of financing in the housing industry ultimately caused the financial crisis and that the recent Lehman Brothers' bankruptcy played a major role in the breakdown in the financial industry. He also warns that one of the side effects from the crisis will be that funds will be less available for borrowers which will affect the general economy and corporate strategy since the banking industry will not have extra funds to help support new businesses. According to Woolery, one lesson that boards should learn from this experience is that they need to push management teams to address risk head on instead of hoping and waiting until things get better. If they decide not to take action, they should be well informed, as it is their job to push management to make the type of difficult decisions that are in the best interest of the company.
"One of the benefits of our websites and online communications are their ability to respond immediately to critical issues affecting board members between both Corporate Board Member and Bank Director," said Kerstetter. "Our interview with Bill Seidman, who is arguably one of the most knowledgeable experts in the banking and financial markets, will help boards and management react immediately to issues that affect their companies."
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