Transcripts

WAMU Is Going, Going, Gone...Sold to J.P. Morgan

SUSIE GHARIB: Shares of JPMorgan surged 11 percent today after it bought Washington Mutual for almost $2 billion. JPMorgan got that fire sale price after federal regulators shut down WaMu late yesterday in the biggest bank failure in U.S. history. As Erika Miller reports, the question now is which financial institution could be next?

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: At Washington Mutual branches, like this one in Manhattan, it was business as usual today. On the company's Web site was a welcome message by JPMorgan Chase, which bought the bulk of WaMu's banking operations yesterday. WaMu's failure has many people concerned about the health of the entire U.S. banking sector. On the positive side, Sandler O'Neill bank analyst Kevin Fitzsimmons does not see the imminent collapse of any other big banks. That includes Wachovia (WB), which holds a heavy pile of sub-prime and other risky mortgage loans .

KEVIN FITZSIMMONS, BANKING ANALYST, SANDLER O'NEILL: I think there are several reasons why Wachovia and Washington Mutual are not apples to apples. I think Wachovia has been up front about that loan portfolio and has tried to be aggressive reserving for it.

MILLER: Wachovia's stock was under heavy pressure today, and after the close, there were reports the bank is exploring a deal with Citigroup (C). However, analysts do see more failures at smaller, less diversified banks, especially those with big exposure to rapidly weakening real estate markets in Florida and California. The prospect of more bank failures is raising concerns that the Federal Deposit Insurance Corporation could run out of money. As a June 30th, the FDIC had $45 billion in reserves, but IndyMac's failure in July is taking a large bite out of the fund. Brian Bethune, chief U.S. financial economist at Global Insight, thinks the FDIC will weather the storm. He points to positive developments in the financial sector. Including Bank of America's (BAC) merger with Merrill Lynch (MER), the takeover of WaMu, and recent capital infusions into Goldman Sachs (GS) and Morgan Stanley (MS). Most importantly, though, is the prospect of a financial sector bailout plan by Congress.

BRIAN BETHUNE, CHIEF U.S. FINANCIAL ECONOMIST, GLOBAL INSIGHT: Things definitely look much better now than they did a few weeks ago. And, with this program that Congress is looking at, it will add to this positive momentum, which is exactly what we need at this point.

MILLER: But analysts say it's not just enough to pass a plan. A lot depends on its details. In particular, which securities the Treasury will buy from banks and how much it will pay for them. Erika Miller, NIGHTLY BUSINESS REPORT, New York.