By snapping up Washington Mutual moments after it went into the record books late Thursday as the largest bank failure in U.S. history, J.P. Morgan Chase Chief Executive Jamie Dimon has created overnight a 240,000-employee behemoth that will duke it out with Bank of America Corp. to dominate banking for years to come.
“JPMorgan Chase took advantage of a banking industry problem…to protect its interests and enhance shareholder value,” wrote CreditSights analyst David Hendler in a research report.
Shares of JPMorgan were up 4% in afternoon trading Friday, and are down just 2% for the year.
Indeed, the bank’s new total of $904 billion in consumer deposits gives it a clear—$100 billion—lead over BofA.
JPMorgan will also become the largest credit-card issuer, according to Fitch Ratings, with $181 billion of card loans outstanding.
Meanwhile, JPMorgan’s forest of 5,400 branches across the country now ranks as second only to that of BofA, which boasts 6,100 branches.
Better yet, all those gains have come at a bargain price.
Earlier this year Mr. Dimon had offered to buy the nation’s largest thrift for $7 billion, nearly four times the price he ultimately agreed to pay last week.
The deal also comes less than three months after he rescued Bear Stearns for a paltry $10 a share, or about 1/15th the investment bank’s market peak of less than a year earlier.
“I’m a big believer in Dimon because, while Bank of America is paying big premiums to buy companies and assemble its franchise, Dimon basically goes around stealing them,” says Anton Schutz, president of Mendon Capital Advisors and a JPMorgan shareholder.
At this point, about the only area where J.P. Morgan will be at a clear disadvantage to BofA is in retail brokerage — once its proposed acquisition of Merrill Lynch is completed. One possible response to that would be for J.P. Morgan to acquire badly battered Wachovia Corp., which has a large retail sales force.
Such a move would also beef up JPMorgan’s presence in the Southeast, one of the few holes remaining in its colossal franchise.
By buying so much so quickly, however, Mr. Dimon is also running major risks.
His bank is writing down $31 billion of troubled assets inherited from Wamu and could suffer additional losses if home prices continue their slide.
In its presentation to investors discussing the Wamu deal, JPMorgan said it currently projects a 25% decline in housing prices nationally.
But it warned that prices could ultimately fall as much as 37%, and by as much as 64% in Florida.
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