Why was WaMu really closed, and what are the FDIC & OTS hiding?

On Friday the Puget Sound Business Journal posted another great piece by Kirsten Grind on all the shady dealings that went on behind the scenes in the WaMu shutdown ordeal. The piece, titled The Washington Mutual decision is currently available on their site only to subscribers, but over on Portfolio.com (one of their sister sites) you can read the article in its entirety for free.


An example of the blacked out pages released by regulators in response to the Business Journal’s request under the Freedom of Information Act.

Something that I found really interesting about this story was posted over on the Business Journal blog BizTalk. The image at right is a sample page of the kind of materials that the FDIC released to the Puget Sound Business Journal in response to their Freedom of Information Act request.

According to Kirsten:

I received hundreds of blacked out emails from the FDIC and the OTS, WaMu’s primary regulatory, hasn’t sent any emails at all.

Does anybody happen to remember this, from back in January? On Day One, Obama Demands Open Government

All agencies should adopt a presumption in favor of disclosure, in order to renew their commitment to the principles embodied in FOIA, and to usher in a new era of open Government. The presumption of disclosure should be applied to all decisions involving FOIA.

I’m having a hard time reconciling the alleged “new era of open Government” and hundreds of blacked out emails received by the Business Journal. Must be some sort of Newspeak.

In other related WaMu news, someone posted a link to an interesting bankruptcy filing (pdf) over on the forums back in October that basically alleges that the WaMu shutdown was a lengthy con orchestrated by JPMorgan Chase through the federal regulatory agencies to allow JPMorgan Chase to acquire WaMu for a song.

Whatever went down behind the scenes in the months leading up to WaMu’s closure, it certainly seems to appear that it wasn’t all above-board.

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

38 comments:

  1. 1
    Scotsman says:

    I’m not the “tinfoil hat” type, but I am getting pretty tired of this crap. It’s not just WAMU, it’s a whole host of different aspects of this “crisis.” A government of lies and deception, doing what the political class and their friends want, not the wants and needs of the people. And I don’t see how there could be any legally sensitive info that can’t come out now.

    Another example of the same is NASA, a tax payer funded entity, having to be sued after two years of silence on FOI requests, to release their climate study data base. Interesting times.

  2. 2
    AMS says:

    With all that blacked out, it seems like it’s time for court action. I’ve only had to sue once under FOIA, and I won my case. I was awarded $500 in punitive damages.

  3. 3
    cheapseats says:

    This is seriously odd. I understand redaction when it relates to Intelligence sources etc, But what possibly could be so sensitive here that the entire page is blanked out…

  4. 4
    Kyle Krol says:

    Wamu TRUTH…

    PLEASE READ THESE COURT DOCUMENTS!

    JPMorgan admits that the FDIC took over a solvent bank in one of the latest court documents…

    I’m enclosing a few more documents filed through the BK court in regards to a declaration of Thomas M. Blake (http://www.crai.com/ProfessionalStaff/listingdetails.aspx?id=1276 ).

    The declaration can be found in 103-4.pdf at http://www.mediafire.com/?sharekey=3b830df9f3d0e6fce7c82ed4b8f0c380aff12395630f22f3ce018c8114394287
    Quoting:
    12. Based on my review to date, there is no indication that the OTS performed a solvency analysis consistent with the test for insolvency specified in the Bankruptcy Code. There is no indication that the OTS assessed the fair sale-able value of the assets of WMB (or WMI). Nor is there an indication that OTS compared the fair sale-able value of the assets of WMB (or WMI) to the total amount of either company’s respective liabilities. There is no indication that the OTS performed a comprehensive cash flow analysis of WMB (or WMI). Instead, the OTS found that “WMB met the well-capitalized standards through the date of receivership.”8 Thus, without a thorough analysis of the assets, liabilities and capital of WMI and WMB, it is not possible to come to a reliable conclusion concerning the financial solvency of either entity, whether on a consolidated or stand-alone basis.

    Here is another document that says as of August 14, 2008:
    “We propose to decapitalize WMBfsb by returning $20 billion of capital to its parent. The $20 billion will include the master note of approximately $7 billion, proceeds from $3.5 billion of Discount Notes and cash generated through additional wholesale deposits and advances from FHLB Seattle. We propose the payment of at least $10 billion by September 30, 2008 and the remaining $10 billion through December 2009.”

    “The net balance sheet of WMBfsb will be approximately $34 billion to $36 billion after Project Fillmore. The leverage ratio will decrease to 25% from 62%. A well-capitalized institution requires an 8% or higher leverage ratio.”

    Read reference page 45 of DOCUMENT 103-1.pdf from here:
    http://www.mediafire.com/?sharekey=3b830df9f3d0e6fce7c82ed4b8f0c380aff12395630f22f3ce018c8114394287

    Enclosed is a link to the affidavit of Doreen Logan who is the Controller/ Assistant Treasurer of Wamu who states that there was no liquidity problems;

    http://www.google.com/search?hl=en&ie=ISO-8859-1&q=%20Ex.%20D%20to%20Affidavit%20of%20Doreen%20Logan%20%28%201%20/07-3/08%20Account%20Statements%29%20A-46%20…&btnG=Search

    Remember, WMBfsb was also taken from the holding company and sold to JMorgan/Chase with all of the other assets for only $1.88bil…..

    Please, take some time and read these documents. They are a bit long but well worth the read. Don’t you wonder why the main stream media doesn’t mention the suppose “failure” of the largest financial institution in America? Wamu was a 100+ year old company…..Here is a link to all documents filed through the BK Court;

    http://www.kccllc.net/wamu

    Jamie Dimon planted “moles” in Wamu??? JPMorgan committed corporate fraud???

    http://www.kccllc.net/documents/0812229/0812229090501000000000002.pdf

    Wamu’s claims against JPMorgan/Chase;

    http://wmish.com/doc/gov/0603/JPM_V_WMI_-_ANSWER.PDF

    I’m also enclosing another link that quotes Judge Hughes from a case against the FDIC that was wrapped up on August 24, 2005; http://blog.kir.com/archives/2005/08/judge_hughes_ha.asp

    “The record shows that the swap was the only reason for this suit. It also shows that the FDIC knew that it had no factual or legal basis for its claims, and that its cases here and in Washington were shams.”

    As usual, Judge Hughes is acerbic in his opinion regarding the FDIC’s conduct, noting in particular that FDIC officials “lied about it all under oath” and they “discarded the mantle of the American Republic for the cloak of a secret society of extortionists.”

    “It’s hard to find a word that captures the essence of the FDIC’s bringing this action. Irresponsible is close. Arbitrary, dishonest, exploitative, extortionate, and abusive all fit.”

    Judge Hughes concluded that Hurwitz and Maxxam “will recover their costs because the record reveals corrupt individuals within a corrupt agency with corrupt influences on it, bringing this litigation.”

    The Biggest Banking Heist in World History: Washington Mutual
    http://www.marketoracle.co.uk/index.php?name=News&file=article&sid=13894

    http://www.marketoracle.co.uk/Article14326.html

    Please read this descriptive complaint that was submitted to the SEC from Apex Venture Advisors
    Mike Stathis Managing Principal on October 7, 2008 in regards to the manipulation that occurred;

    http://www.avaresearch.com/files/20090930175434.pdf

    http://wamuequity.org
    http://wamuqd.com
    http://www.wamu-shareholders-resources.com/wamued.html
    http://www.wamucoup.com
    http://www.wamustory.com

  5. 5

    Wasn’t there also a comment by a Senator or someone that lead to a bit of a bank run near the end? The withdrawals were pretty heavy as I recall.

  6. 6
    The Tim says:

    More from the new era of open government: Federal workshop on openness closed to the public

    I can’t decide whether it’s hilarious or depressing.

  7. 7
    WaMuQd says:

    There was a 16 billion dollar bank run at WaMu. A subsidiary bank (WaMu FSB) had 20 billion in cash in it that WaMu was in the process of moving to WaMu Bank to make up or the bank run and put a little extra cushion in there. This is why the bank was seized on a Thursday and not a Friday as was always the case in all other banks seizures up to that point in history.

    Overall, yes… ALL US banks were suffering a run.

    “None of them would have survived” had the government stood aside and let the crisis run its course, he said. “The entire U.S. financial system and all the major firms in the country, and even small banks across the country, were at that moment at the middle of a classic run, a classic bank run.”

    http://www.bloomberg.com/apps/news?pid=20601087&sid=aWBnxBZDUtZo&pos=7

    Wamu was gifted to JPM to help them survive amidst their 80 trillion in derivatives. Clearly they were insolvent or damn near insolvent since they were going to be losing money per share until WaMu was gifted to them and they wound up turning profit which is expected to equate to at least 50 cents a share long term.

    Check JPM’s own SEC filing for data on this. They like to claim they’re losing money all over, but had they not stolen WaMu for far less than market value, they’d be bleeding red all over the place.

    WaMu was a sacrifice that enabled TARP to be passed and bolstered JPM’s failing status. The FDIC sold several thousand banks, atms, credit card companies, properties, etc etc… some of which didn’t even belong to WaMu Bank to JPM for 1.9 billion dollars. IndyMac was 1/10 of the size and they got 17 billion for it.

    As of today, nearly a year and a half later, Washington Mutual Inc has not seen one penny from the sale… Even though the FDIC claims the transaction cost them nothing, they now believe they have claims against WaMu’s holding company…

    This spells just one thing. The FDIC want to kill the holding company to make the mess evaporate. They want to do it at all costs. Look into this case people. If people don’t wake up and start asking questions now, some day we’ll be living in a “Friends Of Uncle Sam” based fascist economy… conform or be assimilated.

  8. 8
    Kyle Krol says:

    RE: WaMuQd @ 7

    Here’s a link to JPM’s Oct. 14, 2009 8-K:

    http://investor..shareholder.com/jpmorganchase/secfiling.cfm?filingID=950123-09-50167

    Earnings Release Financial Supplement — Third Quarter 2009, Exhibit 99.2: begins about one quarter of the way down. Page numbers are from that exhibit section.

    Page 3, STATEMENTS OF INCOME:
    Footnote (c): “JPMorgan Chase acquired the banking operations of Washington Mutual Bank for $1.9 billion. The fair value of the net assets acquired exceeded the purchase price, which resulted in negative goodwill. In accordance with U.S. GAAP for business combinations, nonfinancial assets that are not held-for-sale were written down against that negative goodwill. The negative goodwill that remained after writing down nonfinancial assets was recognized as an extraordinary gain.”

    Extraordinary gain(c) per quarter from WMB acquisition:
    3Q08 = $581 M
    4Q08 = $1325 M
    1Q09 = $0
    2Q09 = $0
    3Q09 = $76 M
    Thus total extraordinary gain from WMB acquisition = $1.982 billion

    Page 3, DILUTED EARNINGS PER SHARE:
    3Q08:
    — (8 cents) = income (loss) before extraordinary gain
    — 17 cents = extraordinary gain from WMB acquisition
    — 9 cents = net income

    4Q08:
    — (29 cents) = income (loss) before extraordinary gain
    — 35 cents = extraordinary gain from WMB acquisition
    — 6 cents = net income

    3Q09:
    — 80 cents = income (loss) before extraordinary gain
    — 2 cents = extraordinary gain from WMB acquisition
    — 82 cents = net income

    Conclusions:
    — Because in the acquisition of WMB “the fair value of the net assets acquired exceeded the purchase price”, this resulted in “negative goodwill”, which resulted in an “extraordinary gain” on JPM’s books.
    — For the 3rd quarter of 2008, this extraordinary gain changed what would have been a net income loss of 8 cents per share into a gain of 9 cents per share.
    — For the 4th quarter of 2008, this extraordinary gain changed what would have been a net income loss of 29 cents per share into a gain of 6 cents per share.
    — These numbers reflect only the “extraordinary gain” resulting from the “negative goodwill”. JPM projected in its 1st quarter 2009 10-Q that overall: “…the net income impact of Washington Mutual’s banking operations could be approximately $0.50 per share in 2009.”

    What is “negative goodwill” (from 7/16/09 WMI D.C. filing)?
    Roman L. Weil & Michael W. Maher, Handbook of Cost Management 95-96 (2d ed. 2005): defining “negative goodwill” as “[w]hen a firm acquires another company, and the fair market value of the net assets acquired exceeds the purchase price . . . For negative goodwill to exist, someone must be willing to sell a company for less than the fair market value of a net current assets and marketable securities. Because such bargain purchases are rare, one seldom sees negative goodwill in the financial statements . . . .”

  9. 9
    Ray Pepper says:

    Just on a personal note many of the LLC’S I was involved in and many investors who bought in Nevada and Arizona investment properties utilized the WA MU 40 year option arm (pik a pay- with the last option being deferred interest to be piled onto the principle balance.) It worked GREAT in an **appreciating** environment but OH MY when the House of Cards fell these loans were the 1st to be wiped out. Nearly all the properties I know about have foreclosed or will eventually foreclose in the next 12 months completing the cycle of death.

    WA MU was the biggest player followed by World Savings(Wachovia) in my arena and we loved the products. WA MU didn’t stand a chance and neither did WB. I still think WFC will take another massive hit due to all their worthless HE-LOCS and their buttload of option arms still on the books. Indymac was a big player for us all and we know how they ended up as well.

    The question of WHY WM was really closed doesn’t matter to me. In the end they would have met the same fate. No bank can take that much of a hit on the books and hope for investors to jump in and chase good money after bad. Case in point STSA,FTBK,RPFG,Venture and so many more bleeding regionals.

  10. 10
    Scotsman says:

    Thanks, Kyle, for the additional info. What a frigg’n mess. I hope heads roll…

  11. 11
    Kyle Krol says:

    RE: Scotsman @ 10

    You’re welcome. Here is some information that was put together by some Wamu shareholders that connects JPM and the “moles”….

    http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_W/threadview?m=te&bn=86316&tid=295682&mid=295682&tof=1&frt=2

  12. 12
    mukoh says:

    RE: Ray Pepper @ 9 – Ray FTBK and the rest are bleeding because of the huge weight that development portfolios that they are in which are down by 50-60%. Its horrid. I remember the pay option deals from WM that all the typical onesy toosie investors took. Funny how it now looks like a suicadal jump

  13. 13
    Ray Pepper says:

    RE: mukoh @ 12

    development portfolios / non performing loans currently on the books. Mukoh the big boys have been filing Chp 11/ 7 left and right . These loans will never be performing again and when greater then 10% of NPA is placed on the books of these institutions its not a question of if….just when and who will absorb it.

  14. 14
    mukoh says:

    RE: Ray Pepper @ 13 – I completely agree with that. But these banks are not weighed down with option arms. I see some development construction asset valuations daily are 50% off loan balance. Thats what is mainly weghing down the local banks. Their ability to gather capital is what will make one of these survive, most will fail however. If you look though at WA Fed. Still strong. And they have a great crew.

  15. 15
    Ray Pepper says:

    RE: mukoh @ 14

    Oh I know they are not weighed down with option arms. They are weighted down with non-performing assets and illiquidity. Their ability to gather capital is null. They need to foreclose on these properties/make them perform/ then turn the cash, and restart to Lend.

    Will not happen in time. They are toast.

  16. 16
    Anonymous Coward says:

    So if WAMU was in such great shape, why had they been offering 5% CD’s?

  17. 17
    The Tim says:

    RE: Anonymous Coward @ 16 – I don’t think anybody is saying that they were in “great shape,” just that there was some seriously shady stuff that went on behind the scenes when they were taken down. Maybe they would have survived, just barely.

  18. 18
    mariner22 says:

    Isn’t this a little like telling a cop you shouldn’t be ticketed for speeding because some other car passed you by earlier? Most banks have some serious insolvency problems, yet not every bank has been shut down by Shelia.

  19. 19
    The_Dude_Abides says:

    RE: Kary L. Krismer @ 5

    That would be Charles Schumer.

  20. 20
    David Losh says:

    RE: mukoh @ 14

    Great Crew? They’re a bank.

  21. 21
    what goes up must come down says:

    RE: Scotsman @ 1 – where the hell were you between 2001 and 2008? oh the indignation!

  22. 22
    what goes up must come down says:

    RE: Scotsman @ 10 – Scottsman did you happen to note when the vast majority of the gains were penciled in?

  23. 23
    DrShort says:

    By mariner22 @ 18:

    Isn’t this a little like telling a cop you shouldn’t be ticketed for speeding because some other car passed you by earlier? Most banks have some serious insolvency problems, yet not every bank has been shut down by Shelia.

    I dunno. I’ve only been partially following this story, but it sure seems like the more well connected east coast banks were given every opportunity to recover and WAMU was cut no slack.

    So in your cop/speeder analogy, its like the other cars were speeding, but they were driven by the cop’s high school buddies so he pulled over the out of towner, seized the car, and sold it to his friends at a secret police auction.

  24. 24
    The Tim says:

    By DrShort @ 23:

    So in your cop/speeder analogy, its like the other cars were speeding, but they were driven by the cop’s high school buddies so he pulled over the out of towner, seized the car, and sold it to his friends at a secret police auction.

    I declare DrShort the winner of the dueling analogies competition.

  25. 25
  26. 26
    wreckingbull says:

    Live by the sword, die by the sword.

    If a fractional reserve lending institution wants to live dangerously in the interests of “maximizing shareholder wealth”, they hang their ass in the breeze for unjust action by an out-of-control government.

    There are two villains in this story, and in my opinion, they both share equal responsibility for 4000 Seattle-area jobs going down the crapper.

  27. 27
    Tim says:

    “but it sure seems like the more well connected east coast banks were given every opportunity to recover and WAMU was cut no slack. ”

    Wamu was Countrywide disguised as a thrift. They were toast and had to go.

  28. 28
    what goes up must come down says:

    RE: what goes up must come down @ 22 – hey I am surprised — no reply to this since SB has become somewhat of a political blog, I mean I would have thought those cons out there would have blasted back, oh that’s right the concern now is to prove global warming is a myth — yeah and the earth is flat, I agree.

  29. 29

    I Remember in the 80s When WAMU Offerred 5% Interest on their Free Checking Account

    They were the only bank with free checking. The only hitch was you had to have at least $2500 in the bank in any other account. Then the late eighties came and BECU offerred 8% on their free checking with no minimum account balance…..that was back before banks would lend to anyone that breathed.

    Now, all the banks have turned into zombies [if you look at the tiny amount of private loans compared to federal type loans] and they want you to save at 1% while they loan shark you on 23% minimum credit cards.

  30. 30

    RE: softwarengineer @ 29 – But in the early 80s inflation was still pretty high, so 5% was hardly great.

    The Capretto & Clark firm back in the early 80s was offering investors 24%. Actually, if you knew someone who would loan money at anything less, they’d pay you the difference for as long as the money was invested. So if someone you knew would loan at 18%, you’d get 6%.

  31. 31
    David Losh says:

    The mystery is probably in the portfolios purchased by Washington Mutual in the late 1990s starting with Great Western Bank, Ahmanson, and of course the sub prime loan originator Long Beach Financial.

    The Ahmanson purchase was rumored to contain tons of toxic loans that were current at the time, but time bombs waiting to go off.

    Long Beach Financial Corp., California, 1999
    H. F. Ahmanson & Co. (Home Savings of America), California, 1998
    Great Western Bank, 1997

  32. 32
    David Losh says:

    RE: Kary L. Krismer @ 30

    I’ve been wandering around for about an hour trying to remember Mel’s last name, but yes, the claim was that they would get you a 24% return.

  33. 33
    David Losh says:

    It was Mel Heide, Dino Rossi’s Mentor.

    http://www.thestranger.com/seattle/Content?oid=19430

    The story kind of sounds like today’s banking system.

  34. 34

    RE: David Losh @ 32 – Yes it was Mel Heide. I think way too much is made of the Dino Rossi/Mel Heide connection. Dino was a sales person there I believe, but in any case I do not recall his name being associated at all with any wrongdoing.

  35. 35
    Lake Hills Renter says:

    RE: what goes up must come down @ 28:

    since SB has become somewhat of a political blog

    So I’m not the only one that’s noticed, then. It seems like this is becoming more of an economics and politics blog than a Seattle area housing and real estate blog.

  36. 36
    frontncenter says:

    It’s worth bringing the WAMU issue up again because it seems that was only beginning of a myriad of fraudulent activity in connection with this Bank. The real story is still fairly unknown but I have a feeling a lot more is about to come out. I believe it will get to the heart of why everything was done so secretly.

    What I was able to ascertain from creditable sources, the FDIC’s information directly conflicts with that of other agencies records that regard key events, like, what actually took place, when it actually happened and which banks were actually closed and sold off.

    It seems WaMu may have known a lot sooner about the FDIC closure and possibly even prepared for it by transferring assets
    and calculated mergers.

    So far we’ve seen enough to know anything is plausible and there’s enough information to show things were definitely off.

  37. 37
    frntncntr says:

    This is worth visiting again, because WaMu wasn’t and isn’t closed, and they did transfer assets 3 or 4 days before the shutdown. HUD information shows that FDIC & Chase are full of it.

  38. 38
    frntncntr says:

    Hasn’t anyone noticed the language shift ? The FDIC changed the information on their site to specifically read “WMB fsb and Washington Mutual – Henderson NV.” If you read JPMorgans application to purchase, they specifically say they wanted “WMB fsb” and then asked that “Washington Mutual – Henderson NV” be allowed to merge.

    HUD Info https://entp.hud.gov/sfnw/public/lend_detail.cfm?lendlist=04164&lender_type=t2

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