JPMorgan Chase & Co is expected to acquire the deposits of Washington Mutual Inc, the largest U.S. savings and loan, in a government-brokered bailout, the Wall Street Journal reported on Thursday.
The purchase could be a major step in cleaning up a U.S. financial system littered with toxic mortgage debt.
Acquiring the deposits could fulfill JPMorgan Chief Executive Jamie Dimon's long-held goal of becoming a retail banking force in the western United States. It comes six months after JPMorgan, the No. 3 U.S. bank, agreed to acquire the failing investment bank Bear Stearns Cos at a fire-sale price. Branches would also be included in the transaction, the newspaper said.
JPMorgan said it would hold an investor conference call at 9:15 p.m. EDT on Thursday, but it did not say why. Neither company returned calls for comment.
The deposit acquisition is not likely to affect the roughly $45.2 billion insurance fund of the Federal Deposit Insurance Corp (FDIC), which analysts expect will be tapped dozens of times in the next few years to cover bank failures.
It also comes as Washington wrangles over the fate of a $700 billion bailout of the financial services industry, which has been battered by mortgage defaults and tight credit conditions.
"Jamie Dimon is clearly feeling that he has an opportunity to grab market share, and get it at fire-sale prices," said Matt McCormick, a portfolio manager at Bahl & Gaynor Investment Counsel in Cincinnati. "He's becoming an acquisition machine."
JPMorgan ended June with $1.78 trillion of assets, $722.9 billion of deposits and 3,157 branches.
Washington Mutual ended June with $309.7 billion of assets, $181.9 billion of deposits, 2,239 branches and 43,198 employees.
Shares of Washington Mutual plunged 80 cents to 89 cents in after-hours trading after falling 57 cents to $1.69 in regular trading on the New York Stock Exchange.
A transaction would follow more than a week of negotiations over the fate of Seattle-based Washington Mutual, which attracted interest from several large North American and European banks, as well as private equity firms, despite soaring mortgage losses and evaporating investor confidence.
It also appears to be a costly defeat for David Bonderman and his private equity firm TPG Inc, which in April invested $2 billion in Washington Mutual as part of a $7 billion capital-raising by the thrift. TPG was not available for comment.
Washington Mutual's $227 billion book of real estate loans, more than half of which comes from home equity loans, and adjustable-rate and subprime mortgages now considered risky, ensconced the thrift on the critical list of financial institutions needing help, analysts said.
Its fate appeared to grow more precarious after problems with mortgage-related debt led to last week's bankruptcy filing by Lehman Brothers Holdings Inc and the near demise of insurance company American International Group Inc.
The addition of Washington Mutual would make JPMorgan close in size to Citigroup Inc, now the largest U.S. bank by assets. It would trail Bank of America Corp assuming that bank, which now ranks second in assets, completes its planned purchase of Merrill Lynch & Co.
Once something of a golden child at Citigroup Inc before Sanford "Sandy" Weill engineered his ouster in 1998, Dimon has been carving for himself something of a role as a Wall Street savior.
Some historians see parallels with the legendary financier John Pierpont Morgan, who ran J.P. Morgan & Co and was credited with intervening to end a banking panic in 1907.
Bank of America Chief Executive Kenneth Lewis has also been credited with helping steady Wall Street, or at least reduce damage, with his acquisitions this year of Merrill Lynch and Countrywide Financial Corp, the troubled mortgage lender that was once the nation's largest.
It was not immediately clear how much of Washington Mutual's loans might have been eligible for the bailout. The thrift has a significant presence in California and Florida, two of the states hardest hit by the nation's housing crisis. It also has a significant presence in the New York City area.
The thrift had long been expected to sell itself after amassing $6.3 billion of losses in the previous three quarters. It had also projected $19 billion of mortgage losses through 2011, but many analysts said that was too low.
Washington Mutual earlier this month ousted Chief Executive Kerry Killinger, who spearheaded the thrift's growth as well as its expansion in subprime and other risky mortgages, and replaced him with Alan Fishman, the former chief executive of Brooklyn, New York's Independence Community Bank Corp.