Washington Mutual

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It has been suggested that this article be split into articles entitled Washington Mutual Savings Bank and Washington Mutual, accessible from a disambiguation page. (Discuss)

Washington Mutual, Inc.

Fate	Insolvency. Washington Mutual, Inc.'s banking subsidiaries were closed by the OTS, placed into the receivership of the FDIC and partially sold to JPMorgan Chase which now owns and operates the banks. The holding company Washington Mutual, Inc. (the former bank owner) subsequently filed for Chapter 11 bankruptcy.
Founded	September 25, 1889[1]
Location	Seattle, Washington, United States
Industry	Finance and Insurance
Products	Consumer Banking Financial Services
Key people	Alan H. Fishman, Chief Executive Officer
Peak size	49,403 employees
Parent	Washington Mutual Inc.
Subsidiaries	WaMu Investments, Inc; Washington Mutual Insurance Services; Washington Mutual Card Services

Washington Mutual, Inc. (abbreviated to WaMu) (Pink Sheets: WAMUQ) is a bank holding company and the former owner of Washington Mutual Savings Bank, which was the United States' largest savings and loan association.^[2][3][4][5]

On September 25, 2008, (the 119th anniversary of its founding), due to a massive 10-day bank run, the United States Office of Thrift Supervision (OTS) seized Washington Mutual Savings Bank from Washington Mutual, Inc. and placed it into the receivership of the Federal Deposit Insurance Corporation (FDIC). The FDIC sold the banking business to JPMorgan Chase, which re-opened the bank the next day. The FDIC stripped the holding company of its banking assets, leaving it with newly worthless subsidiary bank debt obligations and equity.^[6][2] Washington Mutual, Inc. filed for Chapter 11 voluntary bankruptcy in Delaware, where it is incorporated, the next day, September 26, 2008.^[3][7]

Washington Mutual Savings Bank's closure and receivership is the largest bank failure in American financial history.^[2][3] Before the collapse, it was the sixth-largest bank in the United States.^[8] According to holding company Washington Mutual Inc.'s 2007 SEC filing, it held assets valued at $327.9 billion.^[9]

[edit] Business operations prior to bank receivership

Despite its name, Washington Mutual ceased being a mutual company in 1983 when it demutualized and became a public company.

As of June 30, 2008, Washington Mutual Savings Bank had total assets of US$ 307 billion, with 2,239 retail branch offices operating in 15 states, with 4,932 ATM's, and 43,198 employees. It held liabilities in the form of deposits of $188.3 billion, and owed $82.9 billion in 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 $11.6 billion, including $3.23 billion in payment option ARMs and $3.0 billion in subprime mortgage loans.^[10]

On September 15, 2008, the holding company received a credit rating agency downgrade, from that date through Sepember 24, 2008, customers withdrew $16.7 billion in deposits, which ultimately led the Office of Thrift Supervision to close the bank.^[10][6]

The FDIC then sold most of the bank's assets and liabilities, including secured debt to JPMorgan Chase for $1.9 billion. Claims of the subsidiary bank's equity holders, senior and subordinated debt (all primarily owned by the holding company) were not acquired by JP Morgan Chase.^[3][11][12]

[edit] History

The Washington Mutual Tower in Seattle, Washington

[edit] Mutual savings bank

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 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.^[13] By 1917, it was operating under the name Washington Mutual Savings Bank.^[14] The company purchased its first company, the financially distressed Continental Mutual Savings Bank, on July 25, 1930.^[13] Its marketing slogan for much of its history was "The Friend of the Family". At the time of its demise, the slogan was "Simpler Banking, More Smiles".^{[citation needed]}

[edit] Post demutualization growth

In 1983, Washington Mutual bought the brokerage firm Murphey Favre and demutualized, converting into a capital stock savings bank. By 1989, its assets had doubled.^[13] In October 2005, Washington Mutual purchased the "subprime" credit card issuer Providian for approximately $6.5 billion. In March 2006, Washington Mutual began the move into its new headquarters, WaMu Center, located in downtown Seattle. The company's previous headquarters, Washington Mutual Tower, stands about a block away from the new building on Second Avenue. In August 2006, Washington Mutual began using the official abbreviation of WaMu in all but legal situations.

[edit] Acquisitions

A WaMu office in Naperville, Illinois

Former Dime Savings Bank branch in Brooklyn, New York

Since the acquisition of Murphey Favre, WaMu made numerous acquisitions with the aim of expanding the corporation. By acquiring companies including PNC Mortgage, Fleet Mortgage and Homeside Lending, WaMu became the third-largest mortgage lender in the U.S. With the acquisition of Providian Financial Corporation in October 2005, WaMu also became the nation's 9th-largest credit-card company.

A list of Washington Mutual acquisitions since demutualization:^[15]

• Commercial Capital Bancorp, California, 2006
• Providian Financial Corporation, California, 2005
• HomeSide Lending, Inc., Florida, a unit of National Australia Bank, 2002
• Dime Bancorp, Inc., New York, 2002
• Fleet Mortgage Corp., South Carolina, 2001
• Bank United Corp., Texas, 2001
• PNC Mortgage, Illinois, 2001
• Alta Residential Mortgage Trust, California, 2000
• Long Beach Financial Corp., California, 1999
• Industrial Bank, California, 1998
• H. F. Ahmanson & Co. (Home Savings of America), California, 1998
• Great Western Bank, 1997
• United Western Financial Group, Inc., Utah, 1997
• Keystone Holdings, Inc. (American Savings Bank), California, 1996
• Utah Federal Savings Bank, 1996
• Western Bank, Oregon, 1996
• Enterprise Bank, Washington, 1995
• Olympus Bank FSB, Utah, 1995
• Summit Savings Bank, Washington, 1994
• Far West Federal Savings Bank, Oregon, 1994
• Pacific First Bank, Ontario, 1993
• Pioneer Savings Bank, Washington, 1993
• Great Northwest Bank, Washington, 1992
• Sound Savings & Loan Association, Washington, 1991
• CrossLand Savings FSB, Utah, 1991
• Vancouver Federal Savings Bank, Washington, 1991
• Williamsburg Federal Savings Association, Utah, 1990
• Frontier Federal Savings Association, Washington, 1990
• Old Stone Bank of Washington, FSB, Rhode Island, 1990

[edit] Demise

Washington Mutual's last headquarters, WaMu Center (center left) and its headquarters prior, Washington Mutual Tower (center right) in Seattle, Washington.

In December 2007, the subsidiary Washington Mutual Bank reorganized its home-loan division, closing 160 of its 336 home-loan offices and removing 2,600 positions in its home-loan staff (a 22% reduction).^[16]

In April 2008, the holding company, responding to losses and difficulties sustained as a result of the 2007-2008 subprime mortgage crisis, 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. The bank 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."^[17]

In June 2008, Kerry Killinger stepped down as the Chairman, though remaining the Chief Executive Officer.^[18] On September 8, 2008, under pressure from investors the Washington Mutual holding company's board of directors ousted 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.^[19]

By mid-September 2008, WaMu's share price had closed as low as $2.00. It had been worth over $30.00 in September 2007, and had traded as high as $45 at one point in the previous year.^[20] While WaMu publicly insisted it could stay independent, earlier in the month it had secretly hired Goldman Sachs to facilitate an auction of the bank. However, there were no takers. At the same time, WaMu suffered a massive run; customers pulled out $16.7 billion in deposits in a ten-day span.^[21] This led the Federal Reserve and the Treasury Department to step up pressure for WaMu to find a buyer, as a takeover by the Federal Deposit Insurance Corporation (FDIC) could have been a severe drain on the FDIC insurance fund. The FDIC ultimately brokered the deal without the participation of the Washington Mutual board. Finally, on the morning of Thursday, September 25, regulators informed JPMorgan Chase that it was the winner.^[8]

That night (shortly after the close of business on the West Coast), the Office of Thrift Supervision seized Washington Mutual Savings Bank and placed it into receivership with the FDIC as receiver. In a statement, the OTS said that the massive run meant that WaMu was no longer sound.^[21] The FDIC, as receiver, sold most of Washington Mutual Bank's assets, including the branch network, all of its deposit liabilities and secured debts to JPMorgan Chase for $1.9 billion. The transaction did not require any FDIC insurance funds.^[22] Normally, bank seizures take place after the close of business on Fridays so the FDIC can have the weekend to find a buyer for the failed bank. However, the bank subsidiary was in such dire straits that regulators felt compelled to act a day early.^[8]

The Washington Mutual Inc. holding company management was kept completely in the dark by the regulators; CEO Fishman was flying to Seattle when the deal closed. JPMorgan Chase didn't acquire any of Washington Mutual Bank's equity obligations (though JPMorgan Chase planned to issue $8 billion in common stock have funds to recapitalize the bank); it is believed that the holding company's shareholders, and unsecured bank subsidiary bondholders will have valueless securities.^[8] However, the holding company's stock was practically worthless in any case; by the close of the week's trading it had dropped to $0.16 a share. As mentioned above, it had been worth as much as $45 a share in 2007.^[20] Fishman was in the CEO position for 17 days; he received a $7.5 million sign on-bonus, and received a cash severence of $11.6 million.^[23]

The seizure of WaMu Bank resulted in the largest bank failure in American financial history, far exceeding the failure of Continental Illinois in 1984.^[8][24][25]

On September 26, 2008, Washington Mutual, Inc., the bank holding company of the thrift, and its remaining subsidiary, WMI Investment Corp., filed for Chapter 11 bankruptcy.^[26]

[edit] Post receivership bank operations

In the future, all of the Washington Mutual Bank branches will be renamed to Chase. All financial documents issued by WaMu will carry the JP Morgan logo. WaMu credit and debit cards will also carry the Chase logo. Chase ATMs will become accessible for WaMu customers, and WaMu customers will eventually be able to bank at Chase branches. The acquisition of Washington Mutual Bank gives Chase its first significant presence on the West Coast.^[8]

[edit] See also

• Whoo hoo!, Washington Mutual advertising campaign

[edit] References

[edit] External links

• Washington Mutual
• encyclopedia article for children on kidslike.info about Washington Mutual's bank failure, with picture of letter given to customers