Focus on Banking:FDIC Takes Action

When depositors made a run on Washington Mutual,withdrawing some 16 billion dollars U.S.in a hurry,the Federal Deposit Insurance Corporation took control of the institution,selling it to J.P.Morgan Chase for 1.9 billion dollars U.S..WAMU executives were surprised by the move.JPM assumed all assets,posting a welcome message on WAMU's website.All holders of WAMU debt and equity were essentially wiped out.The acquisition gave JPM more than 5400 branches and the largest U.S. depository base.It will result in 1.5 billion in pretax savings by 2010.There is a 10% overlap of JPM and WAMU operations.JPM will also raise eight billion of capital by a share offering,and it will write down 31 billion in bad WAMU holdings.Once again,JPM was a godsend,helping the government manage the financial crisis,having earlier purchased failed investment bank Bear Stearns.It is doubtful,however,that JPM could handle anything else in the near future,making a rescue plan all the more necessary.Jamie Dimon is CEO of J.P.Morgan Chase.The FDIC acted again Sunday night,taking control of Wachovia Bank(WB),and selling its banking operations to Citigroup(C).Wachovia will retain its brokerage and wealth management units.Citi is paying 1.00 of Citi stock per Wachovia share.Sheila Bair is Chairman of the FDIC.

Responding To Rough Markets

In recent congressional testimony,Ben Bernanke,chairman of the Federal Reserve,said financial markets are stressed,but central bank efforts have helped.The Federal Reserve will act in a timely manner to support growth.Commodity prices and the housing market will weigh on the economy in coming quarters.It is important to recognize that downside risks to growth remain.Inflation could go higher because of energy,food and the weak dollar.Commodity price gains and price rises suggest the upside risk of inflation.The economic situation has become distinctly less favorable.The economy took a significant turn for the worse in early January.Credit conditions may tighten considerably further.The federal deficit is bigger and more threatening than it was in 2001.We're in a worse position to respond to a crisis.The unemployment rate is likely to go higher.The decline in home prices is creating a broad set of issues.Nonetheless,the former professor doesn't think foreign investors have lost confidence in the U.S..U.S. banks should take steps to raise more capital.Some bank failures could take place.The capital ratios of the largest banks remain good.Sheila Bair,chairman of the Federal Deposit Insurance Corporation,agrees.She says 99% of banks are well-capitalized.About 76 banks are on the troubled list,representing around 22 billion dollars U.S. in assets.We're in a challenging environmment,but we have a 52 billion insurance fund.There will be a bit of an uptick in bank failures this year.To handle this,the FDIC wants to bring back 25 retired bank examiners.There are 1200 FDIC employees working in bank receivership.Senator Evan Bayh(D-Indiana) has just returned from a trip to the Middle East.There he met with heads of sovereign wealth funds who are helping U.S. firms such as Citigroup(C) by infusing capital.Senator Bayh said he was reassured by the officials in Abu Dhabi,Qatar and Saudi Arabia.They want to do the right thing.They are eager to meet any U.S. standards.Saudi Arabia's fund is 300 billion,Qatar's is 50 billion,and Abu Dhabi's is the largest in the world at 550-900 billion dollars.To increase their wealth,many retail investors are looking to exchange-traded funds such as the PowerShares Builders Europe 100(ADRU),which is yielding 7.33%,or the SPDR KBW Regional Banking ETF,which yields 6.13%.