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Tue June 26, 2012
Still mad about Chase's takeover of WaMu? You should be, author says
J.P. Morgan Chase’s recent multi-billion dollar trading loss has knocked the bank far down the list of world’s most respected companies, according to the financial magazine Barron’s.
That just adds to the company’s already tarnished reputation in the Northwest because of the way it took over Washington Mutual in a fire sale during the darkest days of the financial crisis in 2008. And that animosity is warranted, one expert says.
Kirsten Grind, a Wall Street Journal reporter and author of the new book, The Lost Bank: The Story of Washington Mutual – The Biggest Bank Failure in American History, covered Washington Mutual’s dramatic collapse for the Puget Sound Business Journal and landed a book contract based on her in-depth reporting examining what happened.
“People in Seattle have a right to sort of feel that way,” Grind said. “We’ve never here in Seattle gotten a very good explanation of what happened to WaMu. One day WaMu is in existence – you saw it suddenly go downhill over a two- to three-week period in which people were pulling out their money, and suddenly here was Chase.”
Grind writes in her book of how Chase wanted to buy WaMu long before its failure and was repeatedly spurned by WaMu’s chief executive, Kerry Killinger.
But she says by the end, Chase managed to get a better deal – paying just $1.88 billion for Washington Mutual, as federal regulators forced a sale after scared depositors made a run on Washington Mutual. The bank’s assets minus deposits at the time totaled $119 billion, meaning Chase purchased it for about one and a half cents on the dollar.
“They were definitely standing by watching as WaMu suffered from all these bank runs that nobody ever heard about, (waiting) for their opportunity to move in,” Grind said.
Blame still rests with WaMu
Still, Grind places blame for WaMu’s collapse squarely on the shoulders of its top management, in particular, CEO Killinger. She chronicles how the previous CEO, Lou Pepper, built a bank that valued ethics and niceness over everything else.
The bank’s slogan was “Friend of the Family.”
She writes that Killinger, the son of a high school music teacher in Iowa, at first continued that culture. But she says gradually he became consumed with building Washington Mutual into a large enough bank that it would transform the financial services industry – just as “category killer” companies like Wal-Mart and Southwest Airlines have done in their industries.
And she says he became intoxicated with the rarefied life of a CEO.
“He went from this very humble guy from Iowa who really grew this great bank to this guy who started believing his own press and left his wife of 30 years and got remarried and started really paying attention to the trappings of a CEO,” Grind said.
Killinger expanded the bank’s mortgage business by adding risky subprime loans that then spiraled into multi-billion dollar losses as housing prices started to decline. Ultimately, that expansion was the cause of the bank’s unraveling.
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