The Downfall of Washington Mutual
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Case Code: BSTR328 Case Length: 17 Pages Period: 2006-2008 Pub Date: 2009 Teaching Note: Not Available |
Price: Rs.300 Organization: Washington Mutual Inc. Industry: Banking & Financial Services Countries: USA Themes: Failure of Strategy, Bankruptcy |
Abstract Case Intro 1 Case Intro 2 Excerpts
"We have gone from a general strategy of shrinking the balance sheet over the past 12 months to now one of growing the balance sheet. I see very good risk-adjusted returns in almost all the asset categories we are involved in"
- Kerry Killinger, Chairman and CEO, Washington Mutual Inc., in 2007.
"This is a company that does not make major mistakes... We do that by learning daily lessons."
- Kerry Killinger, in 2001 on his success at increasing Washington Mutual's assets to US$ 220 billion from US$ 6.6 billion in just over a decade.
Introduction
On September 25, 2008, in what was the largest bank failure in US history, the banking operations of Washington Mutual Inc. (WaMu) conducted through its subsidiary Washington Mutual Bank (WaMu Bank), were taken over by the Office of Thrift Supervision (OTS) and placed into receivership with the Federal Deposit Insurance Corporation (FDIC)(Refer to Exhibit I for information on the top ten bank failures in the United States).
The action came after a 10-day run on the WaMu Bank that saw customers withdrawing US$ 16.7 billion (equivalent to 9% of the deposits held as on June 30, 2008).
Immediately after, FDIC sold WaMu Bank, (including all of its deposits, most of its loan portfolio, and its branch network, but excluding unsecured debt and equity obligations) to JPMorgan Chase & Co. (Chase) for US$ 1.9 billion. Chase re-opened the branches of WaMu Bank for business on September 26, 2008. The same day, WaMu, left with US$ 33 billion in assets and US$ 8 billion in debt, filed for Chapter 11 voluntary bankruptcy.
WaMu's failure came during a period of acute financial and economic turmoil in the US. As of late 2008, the US economy was in the grip of a recession, and the banking system in the country was under severe stress.
However, some analysts commended Chase for making the acquisition. Fitch Rating called the acquisition a "strategic positive" for Chase. Charles W. Scharf, Head, Chase Retail Banking Division, said, "We always looked at it [WaMu Bank] and we always came up with the same conclusion, at the right price, this is No. 1. At the wrong price, this could be terrible."...
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