Washington Mutual's Rise and Fall in the Banking Industry

Washington Mutual was founded in 1889 by William H. Porter and was initially a small bank in Seattle, Washington. It grew rapidly over the years.

The bank's success can be attributed to its innovative approach to banking, including offering free checking accounts and introducing the concept of no-fee checking. This strategy helped attract a large customer base.

Washington Mutual's growth continued throughout the 1990s and early 2000s, with the bank expanding its operations to become one of the largest banks in the United States. In 2006, the bank was acquired by JPMorgan Chase for $1.9 billion.

WaMu failed for five key reasons.

The housing market in California, where WaMu did a lot of business, did worse than in other parts of the country. Home values across the country started falling in 2006 after reaching a peak of almost 14% year-over-year growth in 2004.

By December 2007, the national average home value was down 6.5% from its 2006 high. In California, there was over 15 months’ worth of unsold inventory, compared to the normal six months.

WaMu's rapid expansion of its branches led to poor locations in too many markets. This resulted in making too many subprime mortgages to unqualified buyers.

The collapse of the secondary market for mortgage-backed securities in August 2007 further exacerbated WaMu's problems. Falling home prices meant these mortgages were worth more than the houses were worth.

WaMu wrote down $1.6 billion in defaulted mortgages in the fourth quarter of 2007. This, combined with bank regulation forcing it to set aside cash for future losses, led to a $1.9 billion net loss for the quarter.

The panic among depositors after the Lehman Brothers bankruptcy on September 15, 2008, was a major blow to WaMu. Over $16.7 billion was withdrawn from WaMu's savings and checking accounts over the next 10 days, leaving it with insufficient funds to conduct day-to-day business.

WaMu's moderate size was another factor in its failure. As a result, it wasn't considered "too big to fail" and didn't receive the same level of government support as other banks.

The government's role in the downfall of Washington Mutual was significant. In 2008, the Federal Deposit Insurance Corporation (FDIC) seized the bank, marking the largest bank failure in U.S. history.

Washington Mutual's reckless lending practices, particularly in the subprime mortgage market, had left the bank on shaky ground. The FDIC estimated that the bank's assets had declined by 90% in just two years.

The government's decision to seize the bank was a last-ditch effort to prevent a complete collapse of the financial system. The FDIC took over Washington Mutual's operations and sold its assets to JPMorgan Chase for $1.9 billion.

This move was a stark contrast to the bank's previous attempts to recover, which had only led to further financial losses. The FDIC's swift action helped to stabilize the market and prevent a wider economic disaster.

Washington Mutual's financial struggles led to its downfall. The bank's assets were seized by the FDIC and sold to JPMorgan Chase for $1.9 billion, a fraction of its former value.

The bank's failure was the largest in US history at the time, with over 2,000 branches and 5,000 ATMs affected. This massive failure had a significant impact on the financial industry.

The FDIC's receivership process ensured that depositors' accounts were protected, with over $300 billion in deposits transferred to JPMorgan Chase.

OTS and FDIC Seizure can be a complex and intimidating process, but understanding the basics can help you navigate this challenging situation.

The Office of Thrift Supervision (OTS) and the Federal Deposit Insurance Corporation (FDIC) can seize a bank's assets if it's deemed insolvent or if it's involved in a merger or acquisition.

This typically happens when a bank fails to meet regulatory requirements or if it's facing significant financial difficulties.

The FDIC is responsible for taking over the failed bank's assets and selling them to another financial institution, usually at a discounted price.

In 2008, the FDIC seized Washington Mutual Bank and sold its assets to JPMorgan Chase for $1.9 billion.

The FDIC pays out insured deposits up to $250,000 per account holder, usually within a few days of the seizure.

This means that depositors with insured accounts can access their money quickly, even after a bank seizure.

The FDIC has paid out over $70 billion in insured deposits since its inception in 1933.

OTS and FDIC seizure can have a significant impact on the local economy and community, leading to job losses and business closures.

In the case of Washington Mutual Bank, the seizure resulted in the loss of over 30,000 jobs.

The FDIC works to minimize the impact of a seizure by quickly selling off the bank's assets and providing support to affected employees and customers.

Bankruptcy can be a complex and intimidating process, but understanding the basics can help alleviate some of the stress.

A bankruptcy is a formal process where an individual or business is unable to pay their debts, and a court-appointed trustee takes control of their assets to distribute to creditors.

The most common type of bankruptcy is Chapter 7, which involves liquidating non-exempt assets to pay off creditors.

In some cases, bankruptcy can be a fresh start for individuals or businesses.

Chapter 11 bankruptcy, on the other hand, allows companies to restructure their debts and continue operating while paying off creditors.

Receivership, often confused with bankruptcy, is actually a separate process where a court appoints a receiver to take control of a company's assets due to non-payment of debts or other financial issues.

A receiver's primary goal is to protect the company's assets and ensure they are distributed fairly among creditors.

In some cases, a company may be placed in receivership instead of bankruptcy, depending on the specific circumstances.

Washington Mutual had a massive presence with 2,239 retail branch offices operating in 15 states.

As of June 30, 2008, the bank had a staggering total assets of $307 billion, which would be equivalent to around $427 billion in today's dollars.

WaMu employed 43,198 people, a significant workforce for a financial institution.

It held deposits of $188.3 billion, which was a substantial amount of money at the time.

The bank owed $82.9 billion to the Federal Home Loan Bank and had subordinated debt of $7.8 billion.

WaMu's assets included $118.9 billion in single-family loans, with $52.9 billion of those being "option adjustable rate mortgages" (option ARMs).

A significant portion of these mortgages, $16 billion, were subprime mortgage loans.

The bank also held $53.4 billion in Home Equity lines of Credit (HELOCs) and credit cards receivables of $10.6 billion.

WaMu was servicing loans totaling $689.7 billion, with $442.7 billion of those being for other banks.

Unfortunately, the bank had non-performing assets of $11.6 billion, including $3.23 billion in payment option ARMs and $3.0 billion in subprime mortgage loans.

WaMu made numerous acquisitions to expand the corporation, becoming the third-largest mortgage lender in the U.S. after acquiring companies like PNC Mortgage, Fleet Mortgage, and Homeside Lending.

The rapid post-merger integrations resulted in numerous errors, with issues like account ownership being split and entire loans disappearing.

WaMu's acquisitions included the purchase of Providian Financial Corporation in October 2005, making it the nation's 9th-largest credit-card company.

WaMu's post-growth period was marked by significant changes. In 1989, the company's assets had doubled.

The company reorganized as a holding company in November 1994, separating its non-banking units from its primary banking unit. This move created Washington Mutual, Inc.

In 2005, WaMu purchased Providian for approximately $6.5 billion, expanding its credit card services. This was a strategic move to tap into the growing market.

WaMu began using the official abbreviation of WaMu in all but legal situations in August 2006, solidifying its brand identity.

Expansion was a key part of WaMu's growth strategy, with the company making several significant acquisitions in the late 1990s.

In 1996, WaMu acquired American Savings Bank for $1.6 billion in stock, nearly doubling the total deposits of its subsidiaries.

This acquisition was followed by the merger with Great Western Financial in 1997, which added 416 branch offices in California and Florida to WaMu's network. The merger was completed in July 1997, and both the Great Western and American names were eventually retired in favor of the WaMu brand.

WaMu continued its expansion with the acquisition of H. F. Ahmanson & Company in 1998, which added 409 branch offices in California and Texas to its network. The acquisition was completed for $6.9 billion in stock, significantly lower than the original $10 billion bid.

By the time the merger was complete, WaMu had a total of 892 branch offices operating under various names across the country.

Washington Mutual's banking operations were quite complex, with a thrift charter that limited its ability to make certain types of loans.

The bank had to get around this issue by purchasing commercial banks and maintaining them as separate business entities, starting with the acquisition of Enterprise Bank in Washington in August 1995.

By 2001, WaMu had 38 specialized business banking centers operating under the Western Bank name in the Northwest and the WM Business Bank name in California.

WaMu's banking operations were eventually sold to JPMorgan Chase for $1.9 billion in cash, plus assumption of all secured debt and some unsecured debt, after the bank was placed into receivership in 2008.

The transition to Chase was a gradual process, with WaMu customers able to access Chase ATMs at no extra charge as early as 2009.

In 2009, all WaMu Bank branches purchased from the FDIC after the bank's receivership were rebranded to Chase or shuttered.

Chase ATMs became accessible for WaMu customers at no extra charge as early as 2009, marking the beginning of the transition.

The WaMu brand was formally retired as all branches and accounts were merged into Chase in 2009.

Branches in the Pacific Northwest, Idaho, and Utah were rebranded to Chase in May 2009, while those in Florida, Georgia, Texas, Illinois, and Greater New York followed suit in July 2009.

The remaining branches in Nevada, California, Arizona, and Colorado were rebranded in October 2009, completing the transition.

In areas where Chase already had a strong presence, the bank further consolidated its operations by disposing of some WaMu branches to other banks.

WaMu was initially limited in its ability to make large commercial loans due to its thrift charter.

To overcome this limitation, WaMu began purchasing commercial banks and operating them as separate entities.

In August 1995, WaMu acquired the one-office Enterprise Bank in Washington, and a few months later, it acquired the 41-office Western Bank in Oregon.

By 1997, the Enterprise name and Western Bank name were merged under the Western Bank moniker.

WaMu continued to expand its commercial banking operations, acquiring the one-office Industrial Bank in Los Angeles in 1999, which it renamed WM Business Bank.

By 2001, WaMu had 38 specialized business banking centers operating under the Western Bank name in the Northwest and the WM Business Bank name in California.

WaMu aggressively expanded in the subprime mortgage lending field through acquisitions in the late 1990s and early 2000s.

In May 1999, WaMu acquired Long Beach Financial Corporation for $350.4 million in cash and stock, which had specialized in providing subprime mortgages.

This acquisition marked the beginning of WaMu's expansion into subprime lending, a field that would eventually contribute to its downfall in 2008.

The acquisition of Long Beach Financial Corporation was completed in October 1999.

WaMu continued to expand its mortgage banking operations through the acquisition of other companies, including Alta Residential Mortgage Trust in January 2000 for $23 million.

The acquisition of Alta Residential Mortgage Trust was WaMu's second major move into the subprime mortgage market.

By the end of 2001, WaMu had become the nation's third-largest lender through its acquisition of PNC Mortgage Corporation and PNC Mortgage Securities Corporation for $605 million.

WaMu's aggressive expansion into mortgage banking continued with the acquisition of Fleet Mortgage Corporation from FleetBoston Financial for $660 million in April 2001.

The acquisition of Fleet Mortgage Corporation made WaMu the nation's second-largest mortgage-servicing business.

In December 2001, WaMu acquired HomeSide Lending, Inc. from the National Australia Bank for $1.9 billion, but the agreement did not include the mortgage servicing rights and related financial hedges for the business.

WaMu completed the acquisition of HomeSide Lending, Inc. in March 2002.

In August 2002, WaMu acquired the mortgage servicing rights on a mortgage portfolio worth about $131 billion for $1.3 billion in cash and the assumption of $735 million in debt.

The acquisition of the mortgage servicing rights from HomeSide Lending, Inc. marked a significant milestone in WaMu's expansion into mortgage banking.

By the mid-2000s, WaMu had continued to expand its mortgage banking operations through the acquisition of Commercial Capital Bancorp, Inc. in April 2006 for $983 million.

The acquisition of Commercial Capital Bancorp, Inc. gave WaMu access to the multifamily and small commercial real estate lending markets.

Washington Mutual Savings Bank was incorporated on September 25, 1889, after the Great Seattle Fire destroyed 120 acres of the central business district of Seattle.

Its first home mortgage loan on the West Coast was made on February 10, 1890, marking a significant milestone in the company's history.

The company changed its name to Washington Savings and Loan Association on June 25, 1908, reflecting its expanding operations.

By September 12, 1917, it was operating under the name Washington Mutual Savings Bank, solidifying its identity as a savings bank.

It's worth noting that the company's marketing slogan for much of its history was "The Friend of the Family", highlighting its commitment to serving the community.

Washington Mutual Savings Bank purchased its first company, the financially distressed Continental Mutual Savings Bank, on July 25, 1930, expanding its reach and expertise.

The collapse of Washington Mutual had far-reaching consequences for the financial industry.

The bank's failure led to a significant loss of deposits, with over $100 billion in deposits being transferred to other banks.

This loss of deposits was a major blow to the US economy, contributing to a decline in consumer spending and a rise in unemployment.

The FDIC's takeover of Washington Mutual resulted in a $1.9 billion loss for the agency, which was a significant burden on taxpayers.

The bank's collapse also led to a major shake-up in the financial industry, with many executives and employees losing their jobs.

The collapse of Washington Mutual had far-reaching consequences, affecting not only the bank itself but also its investors and the broader financial community. Bondholders lost roughly $30 billion in their investments in WaMu.

Shareholders also took a significant hit, with most losing all but 5 cents per share. The bank's holding company, TPG Capital, lost its entire $1.35 billion investment.

Other investors, like Deutsche Bank, lost billions as well. They had invested in defunct mortgage securities and claimed WaMu knew they were fraudulent and should have bought them back. It's unclear who would be liable for these claims.

Here's a breakdown of some of the key losses:

The FDIC or JPMorgan Chase may be liable for some of these claims, but the exact responsibility is unclear.

If you're an equity shareholder, you should know that your shares are in Washington Mutual, Inc., the holding company for Washington Mutual Bank, and not the Bank itself.

Washington Mutual, Inc. filed for bankruptcy protection on September 26th, so you'll need to contact them directly for information about this bankruptcy proceeding.

Senior unsecured debt holders don't need to make an additional claim with the Receiver, as their claim has already been registered by virtue of bond ownership.

But, under federal law, 12 U.S.C. § 1821(d)(11), claims by subordinated debt holders are paid only after all claims by general creditors of the institution, and at this time, the FDIC doesn't anticipate that subordinated debt holders of the bank will receive any recovery on their claims.

Other claims against Washington Mutual Bank, including proof of the claims, must be submitted in writing to the Receiver at the following address: FDIC as Receiver of Washington Mutual Bank, 1601 Bryan Street, Suite 1410, Dallas, TX 75201-3479.