Washington Mutual is served upto J.P. Morgan

With blood still on its hands from it's fresh kill of Bear Stearns, J.P. Morgan went after Washington Mutual. Morgan camouflaged the takedown as a bailout of Bear, which was really a sellout. But with its stock trading around eight dollars per share Wa Mu still had legs to run and out run Morgan. That running came to a halt earlier this month as Wa Mu ran out of gas and out of options, fired its CEO Killinger, put itself up for sale and waited. So did J.P. Morgan! Morgan's bailout camouflage worked even better this time.

Obviously, this is a bankruptcy as much as a takeover by JP Morgan. Will it be seen as such by the Credit Default Swaps market? JP Morgan Chase is only buying the deposit-taking subsidiary. I imagine the Credit Default Swap exposure is for the holding company, which is now effectively bankrupt. This is a very important point because my understanding is that all litigation - including class-action lawsuits - should rest with the Washington Mutual holding company were the common shares and subordinated preference shares sit. The only residual litigation risk that JP Morgan is taking on comes from individual lawsuits that mortgage customers might file.

Will it be seen as such by the Credit Default Swaps market? Short answer is yes probably, the credit markets unlike investment banks only get paid to be right. Meanwhile with the Street giddy over the fact that the bank's getting all of Wa Mu's deposits but none of it's liabilities, J.P. Morgan went about raising $40 billion for the buyout, the way most of us reach for a midnight snack from the refrigerator.

New York-based JPMorgan said today it sold $10 billion of shares at $40.50 apiece. The bank rose 33 cents, or 0.8 percent, to $43.79 in composite trading at 10 a.m.

JPMorgan won't acquire WaMu's liabilities, including claims by shareholders and subordinated and senior debt holders, the FDIC said. JPMorgan paid $10 a share for Bear Stearns in March as the New York-based securities firm teetered on the brink of bankruptcy.

``This is one of the reasons I own JPMorgan: They're going to win from all this,'' Schutz said. ``They're taking on credit risk, but they're not taking on any debt obligations.''

As the pace of monopolizing the banking market picks up playing its new role as acquirer of last resort, J.P. Morgan now the largest bank by deposits gains it's presence.

JPMorgan Chase & Co. (JPM) priced the capital raising related to its deal to buy the bulk of Washington Mutual Inc.'s (WM) operations and will sell $10 billion in stock - $2 billion more than expected.

The deal will vault JPMorgan into first place in nationwide deposits and greatly expand its franchise. It represents JPMorgan's second rescue as a buyer of last resort this year. In March, it agreed to buy Bear Stearns Cos., getting a $29 billion backstop from the federal government.

In fact J.P. Morgan gained a little more; revenge.

It looks like JP Morgan is the appointed one as the body of Bear Stearns was still warm when Morgan pounced on Washington Mutual. But WaMu was a beast of a different kind, and aided by other suitors escaped. Morgan was outraged:

J.P. Morgan executives were reportedly furious that WaMu had rebuffed the advance and immediately cut off negotiations, the Journal reported.

JP Morgan's CEO James Diamond sits on the Federal Reserves board of governors. That is the same federal reserve which is partly owned by Treasury Secretary Paulson's favorite firm Goldman Sachs. A slight to one of the privileged elite can have quick and ugly consequences as Washington Mutual and Wachovia both found out. Is there any wonder now why these two were not on the protected from short sellers list? Henry Paulson was very direct.

In WaMu's case, the FDIC set a Wednesday evening deadline for interested parties to submit their offers for various parts of WaMu. Twenty-four hours later, they were already preparing to seize the bank. Earlier this month, Treasury Secretary Henry Paulson made it clear to WaMu that the company should have accepted the takeover deal J.P. Morgan had offered earlier this year, according to a person close to WaMu.

In so JP Morgan whether the new overlord, or acting to provide cover to the existing one, Goldman Sachs climbs its way up the banking latter dining on the juicy remains of a former competitor and savoring the sweet taste of revenge.