How about a few more WaMu updates. The (bad) news seems to keep coming for the Seattle-based bank.
First up, a look back at how WaMu got itself into this mess, courtesy of the Seattle Times: Where WaMu went wrong. This article has its own thread in the forums, so be sure to check that out as well.
Next, take a gander at today’s WaMu headline: Washington Mutual Posts Huge Loss; Director Quits
Washington Mutual, the nation’s largest savings and loan, said Tuesday that it lost $1.14 billion in the first quarter as the struggling economy and flagging real estate values pummeled the bank’s borrowers.
The Seattle-based thrift lost $1.40 per share, compared with a profit of $784 million, or 86 cents per share, in the first quarter a year earlier. It was the bank’s second consecutive quarterly loss.
Washington Mutual also said it needed to set aside $3.5 billion to cover bad loans in its $250 billion portfolio during the first quarter. The bank set aside less than half as much to cover bad loans in the year-ago period.
…
Chairman and chief executive Kerry Killinger promised shareholders that Washington Mutual will turn around within a year.“We will get through this,” Killinger told more than 2,000 shareholders at Seattle’s symphony hall for the bank’s annual meeting Tuesday. “I want people to calm down and have a little faith.”
Killinger outlined the company’s strategy for working through the mortgage crises: aggressive marketing of credit cards, continued growth in services to small businesses, and ongoing improvement in deposits at its retail branches.
Hmm, aggressive marketing of credit cards? Is that really the best way to work your way out of a mess like this? I guess the thinking is that it’s harder for people to “walk away” from credit card debt than from a home loan. Anyway, best of luck to you, WaMu. I have a feeling you’re gonna need it.
(Drew DeSilver, Seattle Times, 04.14.2008)
(Donna Gordon Blankinship, Associated Press, 04.16.2008)
The WAMU story is a debacle. Nothing else could describe it. I’m a very firm believer in that the culture of a company, whether doing well or poorly or running it into the ground, is a reflection of the leadership in the executive circles.
I get the sense sometimes that these companies and other big banks think it’s “cute” to lose a billion here or there. The Wall Street disease of greed seems to have no boundaries and the legal moats these executives have around their jobs and careers makes people sick.
Sadly, as I’ve said ad nauseum, the very loans these folks and other firms were peddling are the very instruments putting WAMU employees and others on unemployment. Did they notice?
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Yes, it is “harder for people to ‘walk away’ from credit card debt than from a home loan” — thanks to the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.”
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I read elsewhere today that WAMU’s losses/delinquencies on their credit cards are running close to 10%, double last year’s rate. I don’t think that credit cards will be the way out for any bask, let alone WAMU. And when the economy really tanks, no one is going to be concerned about their credit score or the bankruptcy laws, they’ll just walk away and disappear into an underground economy.
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Washington Mutual shareholders ask chief to give up post of chairman
Washington Mutual, the largest U.S. savings and loan company, has announced that its shareholders have voted to ask the chief executive, Kerry Killinger, to give up his role as chairman, after huge losses linked to the American housing market.
Washington Mutual, which is based in Seattle, made the statement on Tuesday, when it also announced the resignation of a director, Mary Pugh, the chairwoman of the company’s finance committee. Pugh had been accused of failing to protect the lender from exposure to subprime and other risky mortgages.
The company also bowed to pressure from investors and governance experts in reversing a decision to ignore mortgage losses in awarding performance bonuses to top executives, including Killinger and the chief operating officer, Stephen Rotella………….
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WaMu is insolvent and will need to either be taken over or bailed out in order to survive.
They are toast.
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So the salvation is credit cards???
Try to figure that one out….
Like S. Marty Pantz mentioned, the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005” makes it pretty difficult to file for bankruptcy.
Then again; that was in 2005 when we all lived in $500K homes that sold in 15 minutes, and it was unimaginable that anyone would file for bankruptcy. Of course, this bank lobbyist written law backfired. Record numbers of people filed right before the law took effect, and since then numbers has exploded. The banks that wrote the law are insolvent and, ironically, they want Joe S. Pack to save them with bank fees and credit card interest…
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Perhaps when a corporation goes bankrupt those responsible should be stuck with the payments. Oh you spent it all Ken Lay? Too bad, pay up. Oh you rolled the dice and crapped out Kerry? Too bad, pay up. (I realize that the whole nature of a corporation is to allow for innovation and risk by creating a new legal entity, but at what point does fraud and greed cross the line? Are the protections unlimited or is it really a matter of Corporate lawyers and lobbyists deciding where the line is). Never mind that something like 50% of those who file for personal bankruptcy do so due to medical problems which they can not afford to pay for (and which also result in losing their job and consequently their healthcare). Our nation is, to paraphrase Ralph Nader, run by the Corporation, for the Corporation. Never mind that some corporations are more than willing to eat their own…there is always another one willing to take its place. I’m done now…the soapbox is vacant for the next person.
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So who exactly are these fools depositing money at retail branches? If I’ve got a bank account at WaMu, I’d have already transfered it elsewhere by now.
Also, don’t those new Wahoo commercials for WaMu just scream desperation? They do to me. It’s like some VP was at a rodeo, heard a cowboy yell it out, and said to himself/herself “That’s the tagline that will save the company and get me the corner office!”
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It’s not just any credit cards that WaMU went after; they targeted “subprime” type of borrowers. I’ll bet they cross-sold their subprime mortgages (Long Beach) to the subprime credit card holders and vice versa.
What a mess.
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Also this week, an analyst suggested that WaMu may rack up $16-20 Billion more in losses before this is over.
Matt’s right. They are toast. Just a matter of when and how.
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I had high regards for WAMU in early years prior to the bubble…although it is obvious that their approval process have became a major joke in the recent years. It is still quite sad to see them go down in flame.
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WaMu needs to be held accountable. How? I see lots of law suits, many of them. Jail time for some. WaMu made a gross amount of money making loans to people who should never have qualified. A bloody shark feeding. The Rodeo Grandmas are rolling over in their graves.
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I got one of their agressively-marketed credit card pitches. Into the trash it went, with all the others, after a cursory look for new hooks and strings. Yah, WaMu once serviced their own mortgage loans. In the early 90s, I had a lot of respect for them. Today? None.
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They did purchase Providian, which was (still is) a predatory credit card lender in its heydays.
If you want to talk about bullchocolate, how about eliminating credit card sales in college or put up a cap for credit limit to those under 21 and amount of total credit limit they can have.
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Yes, the downfall of WaMu is tragic, but I think we need to be careful when trying to level blame at “greedy” managers. As I’ve stated on the forum previously, I believe that WaMu managers (and employees) didn’t have much off an option during the bubble mania: either they played along and fought for market share and profit growth with their competitors or found a different industry. No WaMu CEO would have been able to keep their job if they allowed CFC, or other banks, to clean up on all the profits from mortgage securitization in the last decade.
This was a game you had had to play if you wanted to be in mortgage finance. Heck, even the customers would desert you if you weren’t willing to offer high LTVs and exotic pay-options. Telling customers that you required 10% down payments and offered no negative amortization payment options was tantamount to asking them to do business elsewhere, as increasing numbers of home-buyers became enthusiastic about these products.
WaMu shareholders would have crucified any management team that tried to hold the line with conservative mortgage underwriting.
In short: lenders didn’t have any choice but to participate in the bubble mania. It’s unfortunate that so many financial institutions are paying the price for the party, but that’s just the way manias play themselves out.
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Sniglet,
WAMU could have decided not to compete for no-doc high LTV borrowers with the confidence that eventually the banks that did would be suffereing tremendous losses.
If they had not participated, their stock would be higher today because of it.
There are banks that took this approach and are doing fine. (see Washington Federal – WFSL)
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True, and you’ll never see WFSL as one of the top lenders.
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But WFSL has over the years a healthy track record of solid returns. Same with HomeStreet.
Speaking of Banks: Cascade & Frontier is on my watch list for potential heavy strain due to CRE & Res. Dev. Loans under pressure. Frontier has a good number of loans for builders, both regionals and small fry’s.
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I don’t have a lot of examples, but think Montgomery Ward. They went conservative when Sears was expanding. Now the question is, who’s Montgomery Ward?
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WaMu’s stock is up 4% today….doesnt make much sense to me. Anyeone know why it jumped today?
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Several years ago I talked to the mortgage folks at WAMU just to see what kind of mortgage they would give me, if any at all. They approved me, single income, for $350K right off the bat, no downpayment. At the time I was making less than $40K a year. I knew then and there that something was drastically wrong.
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In regards to the idea that all banks had to play along or lose market share, here’s an article that appeared in Ethix magazine about a privately-held company, Homestreet Bank located right here in our backyard. They made the decision to avoid doing subprime (and the immediate profits that came with it) and instead, continued to focus on FHA loans.
http://www.ethix.org/article.php3?id=396
I wonder if this decision could have been made at a publicly traded company. If we were the shareholders, would we have been angry with lower profits during the bubble run-up years?
It’s easy to answer in hindsight.
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No, if WaMu management had stayed away from no-doc high LTV loans they would have under-performed their peers for about 10 years up through 2006 (i.e. WaMu profits would have been much lower than CFC or Citigroup). WaMu shareholders would have voted the management team out with such underperformance and hired someone who WAS willing to play the game.
In short, the ONLY choice WaMu management had was to play the game or change industries.
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Sniglet – Right on.
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Sniglet (#23), that makes me wonder whether their cumulative profit over the 10 years is more than the losses they suffered recently. Maybe in the end of it all, they still did a good job after all.
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I had a friend who kept bragging about how well his WaMu stock was doing for YEARS. He just didn’t care one bit about all the concerns I would outline about their risky lending and the shaky nature of the housing market. If WaMu had underperformed the market I am sure this same guy would have jumped ship quickly, and put his money in an institution with a stock that was rising faster.
Unfortunately, shareholders have very short-term thinking and there’s not much that can be done about it.
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Alex,
Good question. I see that WM stockprice is lower than it was 10 years ago. I’m also seeing billions of dollars in write-offs and losses.
Was subprime “worth it” for WAMU?
I don’t disagree with Sniglet entirely. Since the executives’ performance is tied to stock gains there is an environment that exists that might make it near impossible for them to be prudent.
But what is WAMU? Is it a bank, or is it an investment house?
Much of this mess at retail banks would not be happening if Glass-Steagall was not repealed in 1999.
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I doubt it. WaMu has taken some massive write-downs. Moreover, the very future of the institution is on the line right now. But this is beside the point. WaMu’s management was FORCED to play the game of ever expanding risky lending regardless of whether the short-term profits were justifiable on a long term basis. Investors would have been irate at an executive who suggested WaMu forego a billion in profits back in 2005 in order to ensure they were better managing risk in case of a downturn.
When your competitors are throwing caution to the wind, and minting cash, it is virtually impossible to argue that you should take a different position.
Heck, even on a personal level I can attest how gollyably hard it has been to sit this bubble out. Our friends and family have been constantly telling my wife and I we were making a BIG mistake by selling our house and sitting out the boom over the last 6 years. It got to a point where we couldn’t even stand to be with some people, due to the snide comments and looks we would recieve.
Imagine that the pressures on WaMu management were even greater. At least no one was threatening to fire me because I decided to rent (although, I’ve had a few managers wonder whether the fact I rented and wasn’t interested in buying a home didn’t indicate my over-all judgement was somehow to be questioned).
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Newbie asked why WaMu’s stock price was up. It may be because Freddie Mac just announced that WaMu (along with Wells Fargo and JP Morgan Chase) will be one of the lenders from which it will buy new jumbo conforming loans.
http://www.businessweek.com/ap/financialnews/D903PO683.htm
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All those manger’s and director’s FORCED to play the game. No, they just got caught with their hand in the cookie jar. (Or their pants down) I bet their thinking “I should have left sooner” but the profit was just too tempting!
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hind sight sure is 20/20…
If you think about this WM director that got fired, if he had originally chose to be more prudent with these loans he very well could have been confronted with Sniglets theory: Do it or else you’ll get fired.
If you were that director, and you really believed it would implode eventually, you would know you’d eventually be canned when the SHTF.
So he had a choice: be fired now, or fired later.
tough choice. I guess you might as well make a few million in stock, bonuses and salary if you’re going to be fired anyway. The guy can probably retire…
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I am sure very few lenders believe they were employing the “hit and run” tactic, or perhaps there was such conspiracy that everyone knew subprime lending was a hit and run.
I guess the idea of improving and do better is not universal and some of us just cannot grasp it.
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Yeah; don’t worry about any of the big wigs at WAMU. “They’ll land on their feet”.
When your yearly bonus is more than most people’s lifelong income, it’s not difficult to ignore job security. Not to mention that precedent shows many incompetent execs get hired back somewhere else within months.
Some 10 years ago, Boeing execs were supposed to get a ton of cash if they kept the stock above $60 for a short time (15 days or so). Guess what. It happened just for the days they needed and then it collapsed back to the 40s. But hey; the money was already in the bank!!!
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“I guess the idea of improving and do better is not universal and some of us just cannot grasp it.”
I’m not sure what you mean by this.
“subprime” by definition is riskier paper because of the credit scores of those borrowing. As such, it has a higher rate of default. There is statistical data to prove it.
Of course individuals can improve. But should a bank be betting that a large group of subprime borrowers will default at the same low rates of prime borrowers?
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This discussion of whether or not WAMU was forced into their current position is turning into beating a dead horse. We all know what subprime is, we all their risk, yet during the bubble years, have you ever heard any public outcry about the risk of subprime loans?
This whole hindsight crap is pointless to discuss any further without bringing in new thoughts.
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May I mamma doggie face out to the banana patch?
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This from an article in Slate:
Just two banks, Washington Mutual and Countrywide, wrote more than $300 billion worth of option ARMs in the three years from 2005 to 2007, concentrated in California. Others—IndyMac, Golden West (the creator of the option ARM, and now a part of Wachovia)—wrote many billions more. The really amazing thing is that the meltdown in California is already happening and virtually none of these loans have yet reset.
(From: http://www.slate.com/id/2188982/pagenum/all/#page_start)
What’s scary about this article is that most of these PRIME loans with option-ARM resets haven’t even reset, yet. I bet a lot of the upper-income people who bought in North Seattle in the last few years used this kind of loan… Does anybody have any information on that? They’re not in trouble, yet, because values haven’t crashed, but if they do….
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Thanks Marc.
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There are actual examples of people who were forced to quit their jobs because of their unwillingness to play along. The Wall Street Journal had a piece on S&P, where they mentioned that some of the analysts who were unwilling to change their CDO rating system were shoved out. Likewise, Merrill Lynch fired a top executive who disagreed with the decisions to move even more heavily into CDOs in early 2007.
The really unfortunate thing is that these people who lost their jobs over prinicipal came out far worse in the end than the people who caved in. None of these people got jobs in the same industry, or for the same pay-rates they had. Some of their old colleagues may have lost their jobs now but they made such huge bonusses while the game was still going that they could pretty much retire now anyway.
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“True, and you’ll never see WFSL as one of the top lenders.”
And your point is?
We see where the ‘top lenders’ are; sitting on piles of dog crap.
I don’t give a rat’s ass about a ‘top lender’, I want a sound and responsible custodian for my deposits and CD’s.
Now, anyone with money in WaMu is seriously concerned with FDIC, and looking at alternative financial institutions, most of which are full of the same crap.
It’s the run to be #1 and all the glib lipped nonsense that goes with that race that got us into a mess that will take years to work off.
Capitalism needs adult supervision. The adolescents who play at it have no idea of the consequences of their actions. The real world is busy doing, and providing, not gaming. The malformed egos that do game with the lives of innocents deserve prosecutions and jail time.
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Quick, is it WAMU in 2008 or in 2003?
Don’t tell me they did not know this was coming, and planned for it a long time ago.
History repeats itself. The definition of financial insanity brought on by greed. The only person who got away clean was Craig Davis. After he left, the downturn begain way back then.
http://community.seattletimes.nwsource.com/archive/?date=20040721&slug=wamu21
http://community.seattletimes.nwsource.com/archive/?date=20031210&slug=wamu10
http://seattlepi.nwsource.com/business/183241_wamu23.html
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It’s irrelevant whether WaMu managers foresaw what was going to happen or not. In the end they either had to play along and expand efforts to make risky loans or lose their jobs. It’s that’s simple.
There are MANY people in Wall Street who saw the writing on the wall and refused to go along with the excessive risk taking, and to a person they lost their jobs (see my earlier comments about analysts and executives who lost their jobs). Sure, these people have the moral satisfaction that they stood up for their principals but they never made half the money of their colleagues who remained on the job raking in fat bonuses and perks before the bottom finally fell out.
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I keep reading about banks hording cash, trying to raise cash, etc… but CD rates are below 3% and below inflation. What gives? If you really want my cash Mr. Banker, how about paying for it?
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I don’t disagree with any of your posts on this thread, Singlet. My point, which was not clear enough, was that some of them appeared to build up to this, knowing that THEY would not personally suffer. golly the rest of the “industry” tail wagging the dog.
The ones that set it up, played to get out when credible people started raising red flags. That’s the way the best Ponizi’s work. They walk away.
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When did Sniglet get to be so smart? I think the idea that management would be fired if stock prices didn’t keep pace with the competition is brilliant. I immediately thought of Wells Fargo, or US bank who seem to be doing well, but Washington Mutual had entered the big boy arena in 1998:
Home Savings, Irwindale, Calif., will merge into Washington Mutual Bank, Stockton, Calif., and Home’s parent company, H.F. Ahmanson & Co., will merge into Washington Mutual, Inc., a thrift holding company based in Seattle and regulated by OTS. Washington Mutual also owns a federally chartered thrift in Salt Lake City and a state-chartered savings bank in Seattle.
Washington Mutual, the holding company, has nearly $97 billion in assets, and Ahmanson has about $56 billion. Together, they have more than 21,000 employees. The Stockton-based Washington Mutual Bank has more than $70 billion in assets, $39 billion in deposits and operates in 21 states, although the bulk of its business is conducted through 568 consumer financial centers located throughout California and Florida. Home has nearly $53 billion in assets, $37.6 billion in deposits and operates through 370 branch offices in California and Texas, plus 126 loan production offices in nine other states.
I remeber the Ahmanson deal with awe. It was a bold move. Of ciourse they had to compete. They would have been laughed out of the business if they didn’t.
What an astute observation.
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From the Seattle PI :
Why would anyone trust WaMu’s disgraced CEO on education issues?
Kerry Killinger, the CEO of Washington Mutual, has led WaMu into a debacle: billions of dollars lost already and perhaps $19 billion in new losses to come, thousands of employees fired, a stock value in the basement and now a partial buyout on the cheap by a Texas firm.
Killinger also initially changed the 2008 bonus plan for himself and other top WaMu executives so that no matter how many billion dollars WaMu lost in 2008 from bad real estate loans, those losses would not affect his bonus or those of other execs. Pretty good deal if you can get it. Lose billions and still get a bonus. (According to press reports, Killinger, retreating in the face of stockholder anger, has now promised to revise the bonus plan to include “credit-related targets,” presumably including defaulted loans.)…….
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All I want to know is this – should I pull my checking account out of there ASAP? Will I lose all my money?
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Don’t worry, Bush crony assures people their deposits are safe:
http://money.cnn.com/2008/03/21/magazines/fortune/Benner_Bair.fortune/index.htm?postversion=2008032404
Yah right. I say store your cash under the mattress.
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I would love to meet someone who could explain mortgage financing to me. I specifically want to understand structured investment vehicles, credit default swaps, and all those whacky leveraged derivatives. I’ve veen studying this stuff for a while but I’ll be gollyed if I can figure out where the money is being held. I do know enough to understand that WAMU’s balance sheet is a piece of fiction. Through modern financial engineering you can hold most of the debt off the books.
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So where should you put your mone?. I’m currently leaning toward Boeing Credit Union. I know that Wells Fargo has the best credit rating AAA but they were a major subprime lender so who knows that the real story is.
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rose-colored-coolaid #8,
I have a checking, savings, and credit card account there currently. I use it simply because it’s in walking distance, and my credit unions are a ten minute drive away. Also, wamu’s web site blows away both credit unions where I hold an account.
But the other day after reading about their CEO’s sick payday I decided to walk away, and switch to my one of my credit unions for all my banking. No sooner do I decide this that I get hit with a vague “Service Fee” for over drawing my savings. WTF?? I emptied my savings about a two weeks back after saving up thousands for a brand new Roth IRA, and after I hit the magic amount for 2007 I dropped it into an account with sharebuilder. It’s been sitting empty for at least two weeks now but I still managed to get about three bucks in interest. Then on the same day the interest posted to my account I got hit with four dollar service charge. I’m one dollar six cents overdrawn and I’m pissed as hell. I can’t wait til I get into their branch tomorrow.
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Article from Bankrate.com –
Average Joe still can’t afford a home
Between 2000 and mid-2007, the median home price soared 64.9% to $229,200. The median income, meantime, rose just 16.6%. For would-be buyers, the math doesn’t work.
One of the worst things about today’s real estate market is that there doesn’t seem to be any silver lining in that big black cloud.
Normally, you’d think dramatically falling prices would make homeownership possible for more moderate-income families.
But even with homes more affordable, the median price in many markets is still out of reach for a median-income family, according to “Paycheck to Paycheck: Wages and the Cost of Housing in America,” a study by the Center for Housing Policy, or CHP, in Washington, D.C.
Comparing housing costs in 210 metropolitan areas with the wages earned by workers in 60 occupations, the study found that homeownership is often unaffordable for workers in each of the five-fastest growing occupations — registered nurses, retail salespeople, customer-service representatives, food-preparation workers and office clerks. Registered nurses, who typically have high salaries, were unable to purchase a median-priced home in 108 of the markets.
Continues….
http://articles.moneycentral.msn.com/Banking/HomeFinancing/AverageJoeCantffordAHome.aspx?page=all
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“Citigroup Reports $5.1 Billion Loss, to Cut 9,000 Jobs- AP”
And the Dow is up over 200 points. Talk about an uncertain economy.
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OK, I’m going to throw this out because it’s been on my mind the past couple of weeks. I’ve talked about the price of real estate in Europe, Mexico, and South America going up by leaps and bounds. Europe has forty to sixty year mortgages. Everything in Europe is Euros which I have yet to figure out.
My question is, what is the basis of the value of the Euro? What’s Europe got? What’s thier economic base? I know Germany has manufacturing, but wouldn’t the emergence of China hurt Europe more than it would ever hurt the United States?
In that regard wouldn’t the American banking system become more globally viable?
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>often unaffordable for workers in each of the five-fastest growing occupations —
>registered nurses, retail salespeople, customer-service representatives,
>food-preparation workers and office clerks.
What’s really scary is that those are the fastest growing occupations. Being professionally trained and generally well-payed, nurses are an outlier, but I’m willing to bet it’s just as stressful and unappreciated as the other listed occupations.
We truly are turning into a nation of pizza delivery people!
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Europe has a strong, and dynamic economy, that is hard to pidgeonhole. There are manufacturing strengths in places as diverse as Northern Italy, the French countryside, and Finland.
On the other hand, I strongly believe the enthusiasm for the Euro has been greatly overdone. We are starting to see the needs of the Euro member states diverge, with places like Spain and Ireland facing massive real-estate downturns, while the German economy hasn’t seen the kinds of bubbles that showed up elsewhere. There has even been problems with the Italian bond market (i.e. forcing state intervention).
The Euro has never had to survive through a real economic crisis yet, and it will be very interesting to see if it survives a significant European recesssion.
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I don’t see why the bank employees should take any responsibility. Their #1 concern is taking care of their own families. It is not their problem if some people can’t afford the loans in a few years. Did these people not know how to read and do math when they signed the documents? Best Buy doesn’t ask their customers if they can afford that plasma tv either.
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I whole-heartedly agree. The vast majority of home-owners in dire circumstances today are not victims. They were taking advantage of the easy money that has been made available over the last decade, salivating at the thought of getting rich.
I have many friends who have incomes well in excess of $100K who nevertheless availed themselves of 100% financing, or negative amortization, to allow themselves to buy more house than they could really afford. And why not since homes were appreciating at 15% a year? The more expensive the home you bought, the richer you would get!
I have no sympathy at all for these people now that things aren’t working out so well as they had hoped.
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If you’re looking for places to put your money, I would be looking at the small local banks rather than the large national/international ones. Reason being, they tended to be very conservative in their lending because they held many of their loans as portfolio rather than reselling them on the secondary market.
BECU is probably a good choice, Bank of Washington, Cascade, Frontier, are a few others that come to mind.
I also think privately-held banks would also be a good choice, given that their decision-making is based on different criteria than a publicly-held company. Publicly held companies often (in fact, usually) make business decisions based on what is good for the short-term performance of stock prices, at the detriment of the long-term health of the organization. What’s happened in real estate/banking recently is just the most recent in a long list of historical examples.
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Not necessarily. There are plenty of small institutions that are in trouble these days due to over-exposure to real-estate loans. In fact, many small banks have heavily gorged on commerical construction loans because the residential loan space had become so crowded in recent years.
The first priority anyone should have is to ensure they don’t keep more than $100K in any one bank or credit union, since this is the amount covered by deposit insurance. The second thing is to look at how much interest a given institution offers for CDs. The higher the rate (compared to other institutions), the riskier the institution is (i.e. there is something wrong with lenders that HAVE to pay a high interest rate to get money).
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Here it is –
“Wall Street CEO Playbook: Bet Big. Get Rich. Screw up. Enjoy Golden Parachute”
Posted Apr 18, 2008 01:03pm EDT by Aaron Task
The past two days have brought news of massive losses and additional write-downs at Merrill Lynch and Citigroup, as the financials collectively suffer losses exceeding the GDP of a small country.
The lesson of this credit crisis is that the details change but every financial market crisis is rooted in the same cause: Hubris is the deadliest sin.
When the good times are rolling, people on Wall Street get deluded into think they’re brilliant “masters of the universe” and rarely think about things like “capital preservation” and “risk management”.
Inevitably, the cycles turn and those incredible returns get “vaporized” in the span of months, wiping out years of earnings, shareholder value and jobs, as Henry Blodget writes (and rants on the accompanying video).
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Well, I am basing my advice on an interesting conversation I had with someone at Bank of Washington and Cascade. They indicated they had very little exposure on sub-prime, and hardly anything in default. Not too many of the nationals/publicly held entities can say the same.
Anyway, if I was looking for safe place to put my money I’d be looking at banks that have stuck to sound principles on lending. Sniglet, I think your perspective is one thing to consider, but I’d also keep in mind that rates on deposits are related to rates being offered on loans. As we’ve seen low rates on loans are (sometimes) great for the borrower but for the lender, it means they have to make money on volume. In order to make money on volume, they have to approve more loans. To approve more loans, sometimes common sense gets left by the wayside.
I think the key question in this context is, is the bank carefully selecting borrowers and charging (slightly) higher interest, making money off the rate and good performance on those few loans they make, or are they trying to make money off the volume? Remember that the money deposited in turn gets lent out, and as loans are repaid, the earnings are paid out to depositors. It’s long been a truism in the RE industry that BECU offered less competitive rates and it was harder to get an applicant qualified through them. That used to be a bad thing–everyone wanted that great rate on the loan. Now I’d tend to take it as a sign of strength.
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http://www.occ.treas.gov/ftp/release/2008-9a.pdf
It clearly isn’t just the big banks that are hurting these days. Take a close look at the percent of capital your community bank or credit union has tied up in real-estate.
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BECU is not a good alterternative to WAMU. They are large but have limited customer service and their people are poorly trained.
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It is the return of the dead thread zombies!!
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