JPMorgan Chase to Buy Washington Mutual

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Customers Celebrate Takeover

Although WaMu is disappearing—presumably taking with it the distinctive "Whoo hoo!" slogan—some customers said they were relieved. "Chase should do a better job of it," says Julie Monroe, who has a WaMu mortgage. "I can fairly say that they have just gone downhill over the last couple of years," says William Kuntz, a longtime WaMu customer. "Good riddance."

Seattle-based WaMu had been drifting for weeks, and many depositors feared for its future. The bank had been anticipating $19 billion in loan losses over the next two and a half years; analysts said the losses could go as high as $28 billion. It was not immediately clear how those bad loans will be dealt with in the acquisition.

Although the bank's stock had been sliding amid record losses for more than a year, worries came to a head on Sept. 8, when longtime WaMu CEO Kerry Killinger was replaced by banking veteran Alan Fishman. WaMu stock continued to slide even after Fishman's appointment, as worries about the broadening financial crisis escalated. In September, Standard & Poor's cut WaMu's credit rating to below investment grade, or "junk."

No Laughing Matter

Under Killinger, WaMu pursued a strategy of being one of the largest mortgage lenders in the country. The firm expanded where federally chartered banks had once feared to tread, into subprime loans for borrowers with bad credit. WaMu offered exotic pay-option loans that allowed borrowers to roll many of their interest payments onto their principal instead of paying them. Before the merger news, Ladenburg Thalmann (LTS) banking analyst Richard Bove estimated the cost to taxpayers of a WaMu failure could have hit $24 billion.

In June, Killinger spoke before the Seattle Rotary Club. According to an account of his speech in The Seattle Times, Killinger acknowledged that the business of packaging loans for everything from home mortgages to credit-card debt had gone too far. "I think you guys could have gone out and securitized your coats and pants and shirts—somebody might have bought it," Killinger joked.

For WaMu shareholders and employees, though, the resulting meltdown was no laughing matter.

Palmeri is a senior correspondent in BusinessWeek's Los Angeles bureau.