Regional U.S. bank hard hit

In a move by financial regulators to safeguard bank deposits, the Federal Deposit Insurance Corporation (FDIC) is closely monitoring the financial situation in the United States of America. Exposed to the weakening California real estate market, Franklin Bank, a regional Texas bank in Houston has also failed. It was acquired by another Houston bank called Prosperity Bank, acquiring $850 million of the banks less riskier 5.1 billion assets. It also secured $3.7 billion of the banks deposits.

Ravaged by sub-prime mortgages and the inability of borrowers to pay back the money they were lent on mortgages, the bank became paralyzed. In 2007 Franklin Bank had lost more than 75% of its value. With 16% of its sub-prime mortgages in California, the bank is hard hit. It was dabbling with risky deals and assets have made it pay a very big price now.

More and more collapses are expected on the way among the nation’s 8,400 banks. The US mortgage crisis, which has seen more than three million homes foreclosed since the crisis began in late 2006, has crimped shut credit flow world-wide and prompted unprecedented global government interventions in the private sector.[1] It is not surprising that banks are going through a rough period. This was a crisis waiting to happen and was in the making with banks exercising greediness and being too lenient lending too much money in risky assets over the past 15 years. It is time the banks learnt a lesson and I hope do not repeat their mistakes.

Washington Mutual Inc. will eliminate 1,600 jobs in the San Francisco area

After hitting rock bottom, extreme failure and then being bought out by JP Morgan, Washington Mutual Bank (WAMU) in the United States has cut jobs by 13%. It will eliminate 1,600 jobs with layoffs in the San Francisco area and Seattle. Again, the mortgage market in which Washington Mutual was a big player has contributed to the downfall of the corporation. Employees have feared the repercussions for weeks and finally their fears have materialized. Thousands will be laid off for sure. It is not a good time for Washington Mutual and it may even get worse for the bank.

At the point in time when JP Morgan Chase took over the bank, Washington Mutual had 43,000 employees nationwide, more than 4,300 employees in the Seattle area and 5,800 in the state of Washington. The mass of the slashes are most likely to come in administrative, support and back office functions that duplicate jobs and facilities that JP Morgan already has in its ranks. That suggests the brunt of the cuts in jobs will come in places like Seattle, where WAMU had its corporate headquarters.[1] JP Morgan will do what is necessary in its capacity to manage the company’s meltdown. The sub-prime mortgage market has suffocated the major player beyond belief. If it means getting rid of a few jobs, than why not. As long as survival is dependent on that, then it provides a short tem solution for the company to cope with the crisis situation facing the banks and financial institutions.