Feds can break WaMu leases if FDIC takes over bank
September 17, 2008 04:00PM By Adam Pincus
Bank branches that have seen explosive growth in recent years could be cut back substantially if the federal government takes over ailing banks.
The possible reductions are due to a little-known provision that gives the Federal Deposit Insurance Corporation (FDIC) the authority to break leases between a bank and a landlord once the institution has been taken over.
The rule combined with concern about risky mortgage securities and other assets have analysts looking at possible outcomes of a failure of a national lending institution such as Washington Mutual, one of a slew of banks that have stormed into New York City in recent years.
A buyout of the Seattle-based bank might occur in the not-so-distant future. And if that happens, its demise would be the largest bank failure in U.S. history, the Washington Post reported.
The Associated Press reported today that federal regulators have been speaking with large banks to organize a buyout of Washington Mutual.
The savings and loan giant saw its stock drop nearly 95 percent to $2.32 yesterday from a high of $39.25 in September 2007. Its credit rating was downgraded to junk status Monday by Standard & Poor's rating service, adding to concern that the bank could be subject to acquisition.
A spokesman for Washington Mutual declined to comment, but in a statement Monday, the bank said that the rating downgrade will not affect its ability to borrow money, and that at the end of its third quarter, on September 30, its capital is expected to be significantly above required federal levels.
Christopher Whalen, senior vice president and managing director at research firm Institutional Risk Analytics, said he expected Washington Mutual to be sold or taken over by the FDIC as rating agencies and investors put pressure on the company. Washington Mutual is one of a number of banks with a large exposure to risky mortgage securities.
If the FDIC, which has taken over California-based IndyMac Bank, takes control of Washington Mutual, the government has the power to break leases, which would result in the retail landlords being forced to find new tenants, Whalen said. Washington Mutual has over 200 branches in the five boroughs.
In a more likely scenario, were Washington Mutual to be bought by another bank such as JP Morgan Chase, Wells Fargo or HSBC, the purchaser would have to honor the full term of the leases.
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Comments
Anonymous
This opens up an interesting discussion and could leave landlords and owners open to a gamut of problems.
Comment #1 Posted By: Anonymous 09/17/08
Shelly Jaffe
If you open a CD in your own name for $200,000 and add on a beneficiary are you FDIC insured for the $200,000?
Comment #2 Posted By: Shelly Jaffe 09/19/08
Anonymous
Yes you are ..each beneficiary are insured up to 100,000 each
Comment #3 Posted By: Anonymous 09/23/08
Paul Qi
Chase sent me a notice that they will close the branch Wamu has in Maplewood NJ. The lease is only 2 years old. They changed the whole thing in the building and leaving a huge mortgage with us.They stopped the rent payment and we have to stop the mortgage payment to Chase. Is there anyone in Chase or FDIC we can talk to renegotiate the lease or the mortgage terms? WaMu built the branch in such a way that we can hardly lease to other merchants.Please share some information. Paul 201-681-6661
Comment #4 Posted By: Paul Qi 12/13/08
Jeff
My Client has a 20 Year Lease with WAMU and during the Construction phase the takeover occured with Chase, we now received a call that they will be surrendering the Lease to the FDIC? does anyone know what the FDIC does with these Leases?
Comment #5 Posted By: Jeff 12/21/08
Anonymous
The governement has the power to void anything. FDIC will not be responsible for the lease because they are not tenants. The contract law is for regular people, not for FDIC. They do not have a contract with you anyway.
Comment #6 Posted By: Anonymous 12/24/08
Anonymous
This is no surprise. Whoever came from a socialist country, such as China, Russia, Cuba will remember that goverment in those countries have the power to do so.Goverment can let some people win and some people lose.
Comment #7 Posted By: Anonymous 07/22/09
Anonymous
Jeff: if the lease was a ground lease, your client may be able to hold Chase liable on the lease; the agreement between the FDIC and Chase allowed Chase the option to accept or reject leases for "Bank Premises" and the term "Bank Premise" is defined very specifically in the agreement to be a "banking house, facility, .......that was occupied by WAMU on the date of closing". My clients had a ground lease with WAMU and the property was a vacant lot on the date of WAMU's closing; we just got a ruling from a federal judge in Austin that Chase was obligated to honor the lease. if anyone wants to talk about this situation, you can contact me at kkasling@kohlaw.com
Comment #8 Posted By: Anonymous 11/13/09