The Rise & Fall of WaMu
Fascinating story last week in the Puget Sound Business Journal (Seattle), depicting the rise and fall of WaMu:
Here’s a quick excerpt:
“By 2001 — long before the housing bubble stretched dangerously, before most Americans had heard the term “subprime loan” — Killinger had created the fractures that would cause Washington Mutual to collapse in the largest bank failure in U.S. history.
The cracks, according to executives who were there at the time, would spread over the next 10 years, eventually rendering the 119-year-old bank that Killinger painstakingly built into the nation’s largest thrift too weak to withstand the greatest economic downturn of his career.
“By the time you got to the last couple of years, pretty much the destiny of the company had been locked in,” said one former executive. Killinger declined repeated requests to be interviewed . . .
That changed in 1999. As WaMu neared the height of its growth, Killinger, in awe of the management at companies like General Electric, shifted WaMu’s structure so his executive team no longer reported directly to him, executives said. Instead, he divided the bank into two autonomous units: consumer banking, headed by Oppenheimer; and mortgage banking, headed by Craig Davis, who had joined as part of the 1996 American Savings Bank acquisition, and was the first new blood to enter WaMu’s top executive ranks in years. Davis could not be reached for comment.
The management shift disrupted the system that had worked so well, and it inadvertently eliminated the checks and balances that existed when the executive team and Killinger had their hands in all operations at the bank, according to numerous executives. The change in structure was disclosed in a brief paragraph as an apparent afterthought in another stellar earnings report during the second quarter of 1999.
But for many company insiders, it was the beginning of the end.
“It turned out to be far, far bigger than we anticipated,” said Lannoye.
Management shake-ups happen all the time at companies, particularly those growing so rapidly. But, without exception, former and current executives interviewed for this article pointed to Killinger’s changes in the late 1990s as one of the chief causes of the company’s eventual downfall.
One of the main reasons is that it gave much more power to the company’s mortgage division and the executives who ran it over the next 10 years, executives said. Under the new structure, the mortgage unit operated more on its own, and its independence grew when Killinger gave it its own IT and human resources departments, executives said.
“The mortgage unit was responsible for its own bottom line,” said Lannoye. “The checks and balances were gone.”
The entire article is a good read.
Source:
Insiders detail reasons for WaMu’s failure
Kerry Killinger’s role
Kirsten Grind
Puget Sound Business Journal (Seattle), Friday, January 23, 2009
http://seattle.bizjournals.com/seattle/stories/2009/01/26/story3.html
http://jacksonville.bizjournals.com/jacksonville/stories/2009/01/26/daily30.html?t=printable
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February 2nd, 2009 at 10:49 am
Wow! These executives still have the balls to blame the company collapse on a strategic decision made 10 years ago?
So what have these executives been doing in the last 10 years earning hundreds of millions?!!! How about those executives and board of director ignoring the sub-prime and lending risk, and keep expanding the mortgage business in these 10 years?
This article stinks. Someone surely paid the author to shift the blames.
February 2nd, 2009 at 11:01 am
When the sales department determines the risk all hell breaks loose.
February 2nd, 2009 at 11:02 am
I agree, GreatWarrior. This is a case of major CYA after the fact. Classic. Makes me miss Corporate America not one iota.
February 2nd, 2009 at 11:08 am
http://vdare.com/sailer/090201_meltdown.htm
February 2nd, 2009 at 12:08 pm
Off topic, here’s a really interesting item that shows just how overpaid Wall Street is on an inflation-adjusted basis:
http://finance.yahoo.com/news/How-Wall-Street-Continues-To-usnews-14209399.html
Excerpt:
“Wall Street bonus pool in 1985: $1.9 billion
Value in 2008, if indexed for inflation: $3.75 billion
Actual 2008 bonus pool: $18.4 billion
Amount by which bonus pool exceeded inflation: 490 percent
Average Wall Street bonus, 1985: $13,970
Value in 2008, if indexed for inflation: $27,580
Actual average bonus, 2008: $112,000
Amount by which average bonus exceeded inflation: 406 percent”
February 2nd, 2009 at 1:03 pm
BR, are you going to rise to the vdare bait? or has that crap been disproved enough?
Please keep up the good work.
February 2nd, 2009 at 1:46 pm
Actually, that vdare piece is pretty good. It acknowledges the baseless and partisan motivation for most of the blame on CRA, but explains the mechanics of how CRA infected the “crazy” banks. Sailer is a fringe conservative and borderline racist, but he’s onto something with that piece.
February 2nd, 2009 at 2:17 pm
Thisson (off-topic as well) but run the numbers on health care and college tuition, adjusted for inflation. The financial services industry bubble is rapidly deflating (but still has a ways to go). Health care and education are next.
February 2nd, 2009 at 3:17 pm
I wonder if he has a magic murder bag like his uncle?
February 2nd, 2009 at 3:39 pm
The funny thing about WaMu is that if you were really watching the business, they had started shrinking the bank at the end of 2005. From a peak of $350 billion, WaMu’s lead bank wobbled around but steadily fell until it was just $300 billion at resolution. Other business model indicators were unstable through 2006-2007 for those who cared to look. Neither TPG nor the bond holders have anyone to blame but themselves.
February 2nd, 2009 at 4:33 pm
Killinger, in awe of the management at companies like General Electric…
Famous last words.
Why he would emulate Welch’s House of Sleazy Earnings Massage is beyond me. Perhaps he read a hagiographic article in Fortune and thought it would be cool to bask in that kind of glory.
Corporate America has driven out independent thought and deep analysis in favor of shallow, management-fad-chasing hucksters.
February 3rd, 2009 at 4:31 pm
CRA is a “factor,” but not exactly a cause. The causes were far more obvious and direct, and furthermore, had there been no CRA, the same thing would likely have occured. Much as I would like to have a partisan rejoinder to Barney & Co., this is not it. VDARE didn’t convince me of anything other than that CRA was part of it.
February 4th, 2009 at 8:12 am
http://isteve.blogspot.com/2009/02/how-to-guide-to-being-community.html
Sailer has been table pounding the low-income housing angle for several years.
I understand that this blogspot has a differing view, know that I don’t know and
allow others the same.