Washington Mutual Rise and Fall Essay

Custom Student Mr. Teacher ENG 1001-04 1 November 2016

Washington Mutual Rise and Fall

Washington Mutual, Inc. is a savings bank holding company and the former owner of Washington Mutual Bank, which was the United States’ largest savings and loan association. Washington Mutual was incorporated as the Washington National Building Loan and Investment Association on September 25, 1889, after the great Seattle fire destroyed 120 acres (0. 49 km2) of the central business district of Seattle. The newly formed company made its first home mortgage loan on the West Coast on February 10, 1890. It changed its name to Washington Savings and Loan Association on June 25, 1908.

By September 12, 1917 it was operating under the name Washington Mutual Savings Bank. The company purchased its first company, the financially distressed Continental Mutual Savings Bank, on July 25, 1930. Its marketing slogan for much of its history was “The Friend of the Family”. Despite its name, Washington Mutual ceased being a mutual company in 1983 when it demutualized and became a public company on March 11. As of June 30, 2008, Washington Mutual Bank had total assets of US$ 307 billion, with 2,239 retail branch offices operating in 15 states, with 4,932 ATMs, and 43,198 employees.

It held liabilities in the form of deposits of $188. 3 billion, and owed $82. 9 billion to the Federal Home Loan Bank, and had subordinated debt of $7. 8 billion. It held as assets of $118. 9 billion in single-family loans, of which $52. 9 billion were “option adjustable rate mortgages” (Option ARMs), with $16 billion in subprime mortgage loans, and $53. 4 billion of Home Equity lines of Credit (HELOCs) and credit cards receivables of $10. 6 billion. It was servicing for itself and other banks loans totaling $689. 7 billion, of which $442. 7 were for other banks.

It had non-performing assets of $11. billion, including $3. 23 billion in payment option ARMs and $3. 0 billion in subprime mortgage loans. The FDIC sold the banking subsidiaries (minus unsecured debt or equity claims) to JPMorgan Chase for $1. 9 billion, which re-opened the bank the next day. The holding company, Washington Mutual, Inc. was left with $33 billion assets, and $8 billion debt, after being stripped of its banking subsidiary by the FDIC. The next day, September 26, Washington Mutual, Inc. filed for Chapter 11 voluntary bankruptcy in Delaware, where it is incorporated.

Principle line of business Washington Mutual (WAMU) is a leader in the banking industry, offering a wide variety of checking, savings, loans (including home refinancing and equity loans). Known for being one of the top 20 banks in the US, WAMU combines a large capital base with a good service record. When considering WAMU as the bank you use for loans, accounts, student loans, or other refinancing services, we suggest you compare their specific account product offerings. Washington Mutual’s principal business is as a savings bank in the business of making mostly mortgage loans. Enterprise is a commercial bank.

Thanks to Washington Mutual’s conversion last fall to a holding-company format, it now can operate on the commercial side, meaning it can make loans for such things as boats and cars and do small business lending. Enterprise – with its name, employees, and founder and Chairman Tom Cleveland intact – will operate as the first commercial bank unit of Washington Mutual Bank. Washington Mutual (or WaMu; NYSE 🙂 is the United States’ largest savings and loan association. Mutual Despite its name, Washington Mutual it is not a credit union, and ceased being a mutual company in 1983.

Washington Mutual is publicly traded on the New York Stock Exchange. Washington Mutual’s principal activities are to provide financial services to consumers and small businesses such as retail banking, mortgage lending, consumer lending, business banking, business lending, insurance services, credit card services, commercial real estate mortgage and consumer investment services. Popular products include calculator mortgage mutual Washington, home loan mutual payment Washington, mortgage mutual payment Washington, and always popular mortgage mutual rate refinance Washington.

Washington Mutual is the sole surviving major Seattle-based bank after the flurry of mergers in the 1980s and 1990s ended the independence of Rainier Bank, Seafirst Bank, and People’s Bank, among others. Washington Mutual operates more than 2,600 retail banking, mortgage lending, commercial banking, and financial services offices, as of June 30, 2006. Washington Mutual was founded as the Washington National Building Loan and Investment Association on September 25, 1889, in an attempt to save Seattle’s economy after a fire nearly destroyed the city.

It made the first home mortgage loan on the West Coast on February 10, 1890. Its name was changed to Washington Savings and Loan Association on June 25, 1908. During World War I, its assets would expand by 68%. By now called Washington Mutual Savings Bank, the company made its first acquisition on July 25, 1930, by purchasing Continental Mutual Savings Bank. Over the next fifty years, it would be involved in pioneering cash machine networks and telephone banking. There are many Washington Mutual locations today.

Reasons of Rise of Washington Mutual Owner of the third-largest savings and loan in the United States, Washington Mutual, Inc. operates as the bank holding company for Washington Mutual Bank, its chief operating subsidiary, and various other financial services businesses. Included under Washington Mutual’s corporate umbrella during the mid-1990s were Washington Mutual Bank, a federal savings bank, Washington Mutual Life Insurance Company, a life insurance company, Murphey Favre, Inc. , a securities brokerage service, and Composite Research & Management Co. , an investment advisor firm.

Founded in 1889, Washington Mutual registered rampant growth during the 1990s as it expanded throughout the Pacific Northwest. In 1996, the bank nearly doubled its size by acquiring Irvine, California-based American Savings Bank. World War I Conversion into a Mutual Bank In 1917, while the country’s newspapers covered the progress of war overseas, Washington Savings and Loan converted into a mutual savings bank and once again changed its name. Rechristened Washington Mutual Savings Bank, the recast institution boasted more than 16,000 depositors at the time of the United States’ entrance into World War I and benefitted substantially from the century’s first epic military struggle.

During World War I, Washington Mutual’s assets rose 68 percent, recording a gain of more than $4 million, and real estate loans registered an even greater increase, by 250 percent. Washington Mutual’s deposits increased strongly, rising from $15 million in 1921 to more than $26 million two years later. Statewide Expansion Begins in 1964 Citizens Mutual Savings Bank’s existence as a mutual bank was only hours old when Washington Mutual sealed the deal to purchase the eastern Washington-based financial institution.

Founded in 1902 as Citizens Savings and Loan Society, the thrift operated as a savings and loan up until its acquisition by Washington Mutual, acquiring the Pullman Savings and Loan Association the year prior to the 1964 Washington Mutual acquisition. Against the backdrop of these acquisitions, Washington Mutual expanded geographically through internal means by establishing branch offices on its own. Between 1965 and 1973, the bank opened 15 branch offices in the Seattle area and in regions across the state, building itself into a dominant force in Washington State. 982 Arrival of Killinger At the time of the 1982 acquisition, Killinger was 32 years old and had served as a securities analyst and investment broker for the company before being named executive vice-president. Once brought into the Washington Mutual fold, Killinger rose quickly through the bank’s executive ranks, becoming president in 1988 and chief executive officer two years later. During Killinger’s rise, Washington Mutual was moving in a different direction, as the bank began to decline and suffers from waning profitability.

With earnings slipping late in the decade, a new program aimed at restoring profitability and invigorating growth was launched, one that would dramatically amplify the magnitude of Washington Mutual’s geographic scope. 1990s: Unprecedented Growth For the first time in the bank’s history, it extended its presence beyond Washington’s borders, compensating for its belated entry into the regional banking arena by expanding aggressively at a time when the savings and loan industry in general was faring poorly.

In 1991, Washington Mutual ranked as Washington’s largest independently owned financial institution, with $8 billion in assets and 84 financial centers and 17 home loan centers in its home state, Oregon, and Idaho. These impressive figures would soon be dwarfed by the magnitude of the bank four years later, as Washington Mutual’s acquisition spree ignited its growth, carried the bank into Montana and Utah, and necessitated the formation of Washington Mutual, Inc. as a holding company in August 1994. Between 1991 and 1995, Washington Mutual’s profits more than doubled, leaping from $80. million to $190. 6 million, its deposits increased from $5. 4 billion to $10. 6 billion, and its assets swelled from $8 billion to $21. 6 billion. Meanwhile, the number of branch offices operated by the bank had increased dramatically, reaching a total of 248 financial centers and 23 loan centers by the end of 1995. The first half of the 1990s represented a period of growth unrivaled in Washington Mutual’s history. As the bank entered the late 1990s it did not slow its pace of growth, rather, its pace increased.

We hope to do to this industry what Wal-Mart did to theirs, Starbucks did to theirs, Costco did to theirs and Lowe’s-Home Depot did to their industry. And I think if we’ve done our job, five years from now you’re not going to call us a bank. Killinger’s goal was to build WaMu into the “Wal-Mart of Banking,” which would cater to lower- and middle-class consumers that other banks deemed too risky. Complex mortgages and credit cards had terms that made it easy for the least creditworthy borrowers to get financing, a strategy the bank extended in big cities, including Chicago, New York and Los Angeles.

WaMu pressed sales agents to approve loans while placing less emphasis on borrowers’ incomes and assets. WaMu set up a system that enabled real estate agents to collect fees of more than $10,000 for bringing in borrowers. Variable-rate loans — Option Adjustable Rate Mortgages (Option ARMs) in particular — were especially attractive because they carried higher fees than other loans, and allowed WaMu to book profits on interest payments that borrowers deferred. As WaMu was selling many of its loans to investors, it worried less about defaults. Reasons of fall of Washington Mutual

The failure of Washington Mutual Bank (WaMu), Seattle, Washington; the Office of Thrift Supervision’s (OTS) supervision of the institution; and the Federal Deposit Insurance Corporation’s (FDIC) monitoring of WaMu for insurance assessment purposes. OTS was the primary federal regulator for WaMu and was statutorily responsible for conducting full-scope examinations to assess WaMu’s safety and soundness and compliance with consumer protection laws and regulations. FDIC was the deposit insurer for WaMu and was responsible for monitoring and assessing WaMu’s risk to the Deposit Insurance Fund (DIF).

On September 25, 2008, FDIC facilitated the sale of WaMu to JPMorgan Chase & Co in a closed bank transaction that resulted in no loss to the DIF. The collapse marked the largest bank failure in U. S. history, far bigger than that of Continental Illinois, which failed in the 1980s and had just $40 billion in assets. Despite this tantalizing selling point, WaMu’s failure hasn’t received nearly the public scrutiny that many of the other casualties of the financial crisis have received — Bear Stearns, Lehman Bros. , AIG, etc.

WaMu failed because of its management’s pursuit of a high-risk lending strategy coupled with liberal underwriting standards and inadequate risk controls. Ultimately, WaMu’s high-risk strategy broke down when the housing and mortgage market collapsed in mid-2007, leaving WaMu with loan losses, borrowing capacity limitations, and a significantly depressed stock price. In September 2008, WaMu was unable to raise capital to counter significant depositor withdrawals sparked by rumors of WaMu’s problems and other high-profile failures during that time.

WaMu Pursued a High-Risk Lending Strategy In 2005, WaMu management made a decision to shift its business strategy away from originating traditional fixed-rate and conforming single family residential loans, towards riskier nontraditional loan products and subprime loans. WaMu pursued the new strategy in anticipation of increased earnings and to compete with Countrywide Financial Corporation, which, in 2005, WaMu’s CEO saw as “arguably the strongest competitor at this time because of system stability, strong profitability, excellent risk management and aggressive growth plans.

WaMu was fine until August 2007, when the secondary market for mortgage-backed securities disappeared. WaMu could not resell these mortgages, and this, combined with the housing decline, prevented it from selling new mortgages and taking in new cash. By 2007, it had to write-off $1. 6 billion in defaulted mortgages. It also had to set aside additional cash to provide for future losses, resulting in a total net loss for the quarter of nearly $2 billion. As a result, WaMu reported a net loss of $67 billion for 2007, after just reporting a profit of $3. billion for 2006. (Source: WaMu 2007 Annual Report)

In April 2008, the holding company, responding to losses and difficulties sustained as a result of the 2007-2008 subprime mortgage crisis, announced that 3,000 people companywide would lose their jobs, and the company stated its intent to close its approximately 186 remaining stand-alone, home-loan offices, including 23 in Washington State and a loan-processing center in Bellevue, Washington. It stopped buying loans from outside mortgage brokers — known in the trade as “wholesale lending. WaMu also announced a $7 billion infusion of new capital by new outside investors led by TPG Capital. TPG agreed to pump $2 billion into the Washington Mutual holding company; other investors, including some of WaMu’s current institutional holders, agreed to buy an additional $5 billion in newly issued stock. This angered many investors, as TPG’s investment would dilute the holdings of existing shareholders, and as WaMu executives excluded mortgage losses from computing bonuses.

In June 2008, Kerry Killinger stepped down as the Chairman, though remaining the Chief Executive Officer. On September 8, 2008, under pressure from investors, the Washington Mutual holding company’s board of directors dismissed Kerry Killinger as the CEO. Alan H. Fishman, chairman of mortgage broker Meridian Capital Group, and a former chief operating officer of Sovereign Bank, was named the new CEO. By mid-September 2008, WaMu’s share price had closed as low as $2. 00. It had been worth over $30. 0 in September 2007, and had traded as high as $45 at one point in the previous year. While WaMu publicly insisted it could stay independent, earlier in the month it had quietly hired Goldman Sachs to identify potential bidders. However, several deadlines passed without anyone submitting a bid. At the same time, WaMu suffered a massive run (mostly via electronic banking over the internet and wire transfer); customers pulled out $16. 7 billion in deposits in a ten-day span.

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