LINDA WERTHEIMER, host:
It's Morning Edition from NPR News. I'm Linda Wertheimer.
STEVE INSKEEP, host:
And I'm Steve Inskeep. Good morning. Americans wake up this morning to more dramatic news about the financial bailout. Stock markets are likely to open today without a plan in place. That big meeting between President Bush, the presidential candidates and congressional leaders blew up yesterday. Negotiations do continue today, and we'll have more on that story in a moment.
WERTHEIMER: We begin our coverage this morning with the failure of the nation's largest savings and loan. The government seized Washington Mutual, and much of the company will now be sold to JPMorgan Chase. NPR's Jim Zarroli joins me now. Jim, this is being called the largest bank failure in U.S. history. Can you remind us how the company got into so much trouble?
JIM ZARROLI: Well, the same that killed off Bear Stearns, that killed off Lehman Brothers, IndyMac, they are all hurt in the implosion of the mortgage market. Washington Mutual, in particular, did a lot of mortgage lending in California and Florida, which are - both states are states that have had a lot of foreclosures. The Office of Thrift Supervision, which regulates the banks, said Washington Mutual had lost than $6 billion in the last three quarters. Now, in the past week or so, something else had happened. We've seen this ramp-up in the - just the chaos in the financial markets, and customers have been pulling out about $16 billion worth of deposits, which is nine percent of Washington Mutual's deposits, as of June 30. So, the government figured now it had to step in. It had to act before things got much worst. So, it came in. It shut Washington Mutual down and arranged to sell it.
WERTHEIMER: So, in effect, preventing what looked like a - what was shaping up to be a run on this huge bank. Now, it's a retail bank, Jim. So, what happens to the customers and to the people who still have deposits there?
ZARROLI: The government says it's going to - it's reopening today as usual. It will just have new owners. There will be a seamless transition. The regulators are trying to do what they always do in situations like this. They want to convince people that, you know, things are normal, so there isn't a run on the bank. They don't want too many other - more people lining up to take their money out.
WERTHEIMER: So, why does JPMorgan Chase make a decision to step in and take over a troubled bank like this one?
ZARROLI: Well, there was some pressure on them. For one thing, the regulators have been meeting with some of the country's big banks, trying to get them to do a deal. JPMorgan Chase was the one that bid. They are also the ones that bought Bear Stearns last March, you may remember. They're in a, you know, relatively healthy position right now. So, they can afford to kind of go around shopping for good deals, and you know, with all its problems, Washington Mutual is a pretty good fit. It has 2200 branches, and a lot of them are on the West Coast, where JPMorgan Chase doesn't do a lot of business right now or doesn't have branches right now. So, it's only going to pay about $2 billion. Of course, it's also going to be taking on a lot Washington Mutual's bad debt, but you know, obviously, they think they can make the deal work.
WERTHEIMER: This move spares taxpayers yet another costly bailout, is that right? Wouldn't the FDIC have to come in with a big federal rescue for those depositors?
ZARROLI: Yeah, it's a FDIC-insured bank, so the FDIC would have had to pay for accounts up to $100,000. Now, the thing is the FDIC that is supposed to pay customers is running low. There have just been a lot of bank failures this year. So, the fact that JPMorgan Chase has stepped in means, you know, there is a company with deep pockets getting involved.
WERTHEIMER: Jim, thanks very much.
ZARROLI: You're welcome.
WERTHEIMER: NPR's Jim Zarroli.