JP Morgan Raises $10 B, WaMu Purchase of $1.5 B

123jump.com Staff
26 Sep, 2008
New York City

JP Morgan raised $10 billion and may raise additional $1.3 billion to pay for the recent purchase of the banking operations of Washington Mutual and will have the second largest branch network. The bank will write down WaMu loan portfolio by $31 billion and shut up to 10% of its branches.

[R]1:30PM New York – JP Morgan raised $10 billion to pay for the WaMu acquisition.[/R]

JP Morgan raised $10 billion to pay for the recent acquisition of Washington Mutual. The WaMu purchase will deepen the bank’s reach in California, Florida and Washington States and expand the reach in Georgia, Nevada, Idaho and Oregon.

The acquisition creates the second largest deposit network in 23 states with 5,400 branches.

Deal Terms

The company estimates that the acquisition to immediately accretive and add 50 cents per share in 2009. JP Morgan purchase of banking operations of Washington Mutual from the FDIC excluded from the transaction are the senior unsecured debt, subordinated debt, and preferred stock of Washington Mutual''s banks. JPMorgan Chase did not acquire any assets or liabilities of the banks'' parent holding company or the holding company''s non-bank subsidiaries.

JPMorgan Chase will be adding $176 billion of mortgage related securities and will be marking down the acquired loan portfolio by approximately $31 billion, which primarily represents our estimate of remaining credit losses related to the impaired loans.

JPMorgan Chase expects to incur pretax merger costs of approximately $1.5 billion while achieving annual pretax cost savings of approximately $1.5 billion by 2010, net of significant investments in the business.

The bank plans to complete most systems integrations and rebranding by year-end 2010, closing less than 10% of branches in the combined network in overlapping markets.

Public Offering

JP Morgan raised $10 billion through a public offering of 246.9 million shares at $40.50 a share, at a discount of 7% to the yesterday’s closing price of $43.46 and the bank may sell additional 37 million shares to meet demand from investors.

The company set aside $2 billion to cover loan losses from the WaMu acquisition. After the close of the market, yesterday, the company said that its Tier 1 capital ratio will be 8.3%.