Washington Mutual Goes Under
by Mr Credit CardWashington Mutual has been taken over by the government in what appears to be the biggest bank failure in history (for now at least). JPM Chase has taken over all of their deposits, which means that no depositors will lost their money at all. They will have the same accounts, the same account numbers and the branches will remain. JPM Chase bought them for their coveted branch locations. However, equity and preferred shareholders are wiped out.
The scary thought is how the mighty have fallen. This isn’t a Wall Street investment banker who was filled with “greed” (according to most conventional wisdom), or where they dabbled in complex derivatives. This is just a savings and loan institution having their mortgages on their books go sour. Yes, they were probably lax in their lending standards as well, but this is an amazing event.
I have to chuckle that just a couple of days ago, a few PF bloggers were promoting WAMU’s deposit rate at 4%. My good friend SVB promoted their 4% high yield savings rate. Nickel actually went a step further and actually opened a WAMU account. He even took screen shots and and went through the process of signing up (well very done). It turns out that last week, my financial advisor called to tell me that WAMU CDs were trading in the secondary market at 10% yield (yes 10%). In fact, the shorter CDs, 1 month and 2 months were at 27% (yes 27%). So if the secondary market for WAMU CDs were at 10%, 4% seems like a ripoff!.
But having said all this, since JPMorgan Chase has bought all their deposits, 4% looks like good value now! Well done Nickel!
Implications - Well, I have a couple of thoughts here. Firstly, it is a great thing that depositors do not lose a single cent. But I think this news is going to spook lots of people. I think there is a real danger of Main Street losing confidence in the banking system.
Many mutual funds also own Washington Mutual, especially value funds. Many funds will be hurt. But the silver lining is that you can tell which fund manager actually knew what he or she was doing.
The banking sector will face even greater consolidation. While consolidation is necessary to take excess lending capacity out of the system, we will be in a situation where banks will get even bigger and more powerful.
For WAMU deposit customers, be prepared to get Chase credit card offers in your mail soon!
September 26th, 2008 at 10:12 am
Should we still pay on our credit cards? What will happen if we don’t? Could anyone help me on this?
Thank you…..
September 26th, 2008 at 1:15 pm
I believe we (I have one as well) will start making payments to Chase…
I would be shocked to hear otherwise..
Regards,
September 26th, 2008 at 1:16 pm
Yes, you should still pay on your WAMU credit cards. It is business as usual. If you don’t pay your credit cards, I am assuming that business as usual means they will still attempt to collect on any outstanding debts.
WAMU and JPMChase are still operating as two separate companies and it won’t be until 2009 or maybe even 2010 that WAMU converts everything over to the Chase branding.
So, yes, continue paying your bills.
September 26th, 2008 at 1:18 pm
KK - Keep paying. Somebody still owns those accounts, you can bet they will collect.
In general, I think that we will definitely see more consolidation as the economy shifts. Those institutions who are in a position to make purchases, like buying out WAMU will do it. In the end they essentially extend their market share.
Even if the economic downturn becomes more severe it will not last forever and at the end of it all the people who have been smartest with their money will come out of it all the richer.
September 26th, 2008 at 2:47 pm
My question is are the credit cards issued by WaMu still valid?
September 26th, 2008 at 6:31 pm
Just yesterday I got another offer in the mail from WaMu. They want me to take their credit card. By all accounts credit is drying up and now WaMu goes under but they’er still offering to fund me for consumer spending. Something just doesn’t scan here. Can someone please explain in concise and meaningful terms?
September 26th, 2008 at 7:18 pm
I can not make a payment on my WaMu Providian credit card, because since the Presidents speech my bank (Rockland Federal Credit Union, Rockland,MA) has locked down all the accounts. There is no way to withdraw or make any payments to anyone. They did however accept the Direct Deposit of my Paycheck yesterday - now that money is trapped too. Good thing I took out Cash last week and have a high credit limit on my Providian Card!
September 28th, 2008 at 4:19 pm
I have a fixed 3% ,good till paid off, cash advance loan from WM. Can Chase change the interest rate?
October 1st, 2008 at 2:42 am
If a bank closes/blocks several accounts because, in the current climate, they feel you have too much debt, how badly is that likely to affect a credit score that is at the bottom of the “Good” range?
These accounts all together have a rather large balance (>20,000). My concern is that I don’t have this situation “spread” to other cards at other banks. At all banks I have never missed a payment.
October 5th, 2008 at 7:48 am
I dont’ understand how the government can seize the bank, andthen allow CHase to pickand choose what they want to buy. They should have had to buy it ALL, good and bad. Insted they only get the moneymaker part. WAMU gets out of IT’s debts, but us cadholders who don’t get a say in it have to still pay when WAMU gets off scott free?
I’m all for a mass refusal to pay credit card debt owed to WAMU. The government SEIZED the bank. THEN it was sold BY the government to Chase. ANd stockholders and people WAMU OWED money to are going to lose… CHASE wins, and the exect got golden parachutes…
I tink a good mass protest is refusal to pay until we get a bailout too!
October 29th, 2008 at 1:50 pm
Are WAMU credit cards still valid for purchases?
December 8th, 2008 at 2:26 am
Whatever you do, get rid of your wamu credit card. They will raise your interest rate to ridiculous amounts so that there is no way you can pay the payments. Beware, get rid of your wamu card!!