Seattle Bubble

Interesting story from NPR: Washington Mutual Executive Predicted Collapse

For casual observers, bank collapses like this one [WaMu] may seem to have appeared out of the blue. But for executives like William Longbrake, who worked at Washington Mutual for 26 years before September’s tumult, the collapse looked more like a slow unraveling.

Longbrake served as the savings and loan’s chief financial officer from 1982 until 2002 and as a senior executive until a few weeks ago. He says he’s free to talk now about the trouble he saw coming, because no one is left at the thrift to sue him for breaking nondisclosure agreements.

“There was something that disturbed me deeply, and it actually was a long time ago. It was probably about 2003,” he says. “And that’s when home prices began to rise at a rate that was much faster than people’s incomes were rising. Housing prices felt good when they were going up. Everyone was giddy with all the wealth they were accumulating, and a lot of them spent it. The problem was that, all the time, as housing prices were getting higher and higher and higher, the affordability was declining. Eventually, the ability of a lot of people to buy homes just disappeared, and we had too many houses.”

Unfortunately, nobody wanted to hear that kind of sentiment during the boom. Anyone that tried to warn people that home prices were rising too quickly and all the perceived wealth was an illusion was derided as a “doom and gloomer” or outright mocked as a lunatic.

Sometimes it sucks to be right.

From today’s Seattle Times: Feds seize WaMu in nation’s largest bank failure

WaMu’s 43,200 employees won’t feel any immediate impact, though it’s likely JPMorgan will drastically shrink the thrift’s headquarters staff. More than 3,500 people work at WaMu’s 42-story headquarters at Second Avenue and Union Street, along with 800 people elsewhere in Seattle and 1,500 people elsewhere in Washington state.

WaMu is also downtown’s largest office tenant, with about 1.6 million square feet in the central business district. It put some space on the market in recent months, helping raise downtown’s vacancy rate.

JPMorgan reportedly sent e-mails to all WaMu employees asking them to report for work as usual today.

Not surprisingly, I’ve got a few friends that work at WaMu corporate downtown. I really feel pity for them. The fact that WaMu put itself into such a dangerous position was not the fault of the rank-and-file corporate employees, but they’ll be the ones to feel the brunt of this failure.

I’d like to be clear that I do not take any pleasure in knowing that 4,300 people in Seattle are likely to lose their jobs, or the effect that will have on Seattle’s economy.

Another interesting bit from the article:

JPMorgan, which earlier this year offered to buy WaMu for $7 billion in stock — a deal former CEO Kerry Killinger turned down in the belief he could salvage the company — was the high bidder in an auction the FDIC conducted Wednesday, Bair said. Three other banks submitted bids for WaMu’s banking assets.

So four banks were bidding on WaMu’s assets, and $1.9 billion was the highest bid. Dang.

(Drew DeSilver, Seattle Times, 09.26.2008)

Bloomberg: JPMorgan Buys WaMu’s Deposits as Thrift Is Seized

JPMorgan Chase & Co., the third- biggest U.S. bank by assets, agreed to pay $1.9 billion for the deposits of Washington Mutual Inc. after the thrift was seized by regulators in the biggest bank failure in U.S. history.

The U.S. government closed Seattle-based Washington Mutual amid customer withdrawals of $16.7 billion since Sept. 15, the Office of Thrift Supervision said in a statement. WaMu had “insufficient liquidity” and was in an “unsound” condition, the OTS said.
…
“JPMorgan is getting a steal compared with what they were going to pay,” said Scott Adams, a pension and investment analyst at the American Federation of State, County and Municipal Employees in Oakland, California, which owns WaMu shares. “It’s very tragic.”

WaMu collapsed after its credit rating was slashed to junk and potential suitors passed on making a bid. Facing $19 billion of losses on soured mortgage loans, the lender put itself up for sale last week.

New York-based JPMorgan won’t acquire liabilities of the lender, including claims by shareholders and subordinated and senior debt holders, the Federal Deposit Insurance Corp. said.

For those of us that still have some money in accounts, the FDIC page on the failure/sale has some details about how the transition is going to go down.

I left a few hundred dollars in an account there just out of morbid curiosity. Also, it allows me to write about the process from the perspective of a depositor.

I hope none of you bought lots of WaMu stock when it was $2 thinking it was a good deal…

WaMu is still making headlines, and in this case I don’t think any press is good press…

New York Times: Washington Mutual Is Said to Consider Sale
Seattle Times: WaMu scrambles to stay alive; it may be trying to find buyer

From the Seattle Times article:

With the wreckage from the nation’s worst financial crisis piling up around it, Washington Mutual strove Wednesday to salvage itself, reportedly considering all options up to and including a sale of the entire company.

WaMu declined to comment on what it called “rumors and speculation.” But its largest shareholder granted it a key financial concession — clearing the way for anything from a big capital infusion to an outright sale — and both The New York Times and The Wall Street Journal reported investment bank Goldman Sachs has been shopping Seattle’s biggest financial institution to potential buyers.

Any purchase of WaMu likely would lead to the loss of thousands of jobs in Seattle, at a time when unemployment is rising and the local economy is generating few new jobs.

WaMu employs more than 3,500 people at its headquarters at Second Avenue and Union Street, along with 800 people elsewhere in Seattle and 1,500 people elsewhere in the state.

WaMu’s options seemed to be narrowing almost hourly. With other troubled financial firms seeking buyers to avoid bankruptcy or federal takeover, fewer and fewer companies have both the means and the potential desire to buy WaMu.

If my basic understanding of the process is accurate (big if), any potential buyer of WaMu would be forced to “mark to market” WaMu’s entire portfolio after a sale, which means immediately taking billions of dollars of losses.

I would think that if there were a bank out there that was capable and interested in buying WaMu, they would have come forward by now.

Here’s a piece from Bloomberg News yesterday on WaMu’s troubles: Rule hobbling suitors batters WaMu stock

Shares of Washington Mutual fell 29.7 percent to a nearly 18-year low Wednesday on concern a new accounting rule could hinder attempts to find a buyer.

WaMu stock dove 98 cents to $2.32, the lowest close since November 1990. The stock of the Seattle company, the nation’s biggest savings and loan, has tumbled nearly 46 percent since the board Monday announced the ouster of CEO Kerry Killinger, and the shares are down 93 percent in the past year.

Potential acquirers ended talks to buy WaMu this year in part because the accounting rule would force buyers to compute a target’s assets at market prices instead of deriving values from measures including the purchase price, two bankers involved with the talks said.
…
Newly installed WaMu Chief Executive Alan Fishman, who sold the last bank he ran, said Monday a sale wasn’t in the bank’s future. “You don’t build a company to sell it,” he said.

Fishman was CEO of Brooklyn’s Independence Community Bank, which was sold to Philadelphia-based Sovereign Bancorp in 2006.

Others aren’t so sure.

“The market will likely view the removal of WaMu’s former CEO as the last remaining hurdle for the board to consider pursuing a possible sale,” Merrill Lynch analyst Kenneth Bruce wrote Monday to investors. Complicating a potential sale: “the poor quality of WaMu’s loan portfolio.”

Anybody out there still have money at WaMu? What’s the consensus among Seattle Bubble readers on the bank’s chances of lasting beyond this month?

There’s been quite a bit of talk about WaMu in the last week, so consider this your open thread to air your thoughts, worries, and hopes for WaMu.

(Bloomberg News, 09.11.2008)

Wall Street Journal: Washington Mutual Forces Out CEO

Kerry Killinger, who helped build Washington Mutual Inc. into the nation’s largest thrift and then presided over its rapid decline, is being ousted as chief executive, making him the latest casualty of the mortgage crisis.

For months, Mr. Killinger had fought off a growing chorus of calls for his removal. Even after Citigroup Inc., Merrill Lynch & Co. and Wachovia Corp. pushed out their chiefs over mortgage-related write-downs, and Mr. Killinger disclosed losses at WaMu of as much as $19 billion, the company’s board, dominated by associates and longtime allies, continued to back him.

The board recently got new blood in key posts and concluded WaMu needed an outsider to signal a fresh start, according to people familiar with the matter. Board leaders conducted a discreet search for Mr. Killinger’s replacement and told the CEO Thursday that they wanted him to retire, these people said.

Succeeding Mr. Killinger will be Alan Fishman, currently chairman of New York commercial mortgage broker Meridian Capital Group. Before joining Meridian in 2007, Mr. Fishman was president and chief operating officer of Philadelphia-based Sovereign Bank, the nation’s second-largest thrift.

Too little, too late?

P-I Coverage from Bill Virgin: WaMu’s woes claim CEO Killinger