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WaMu Crashes – Biggest Bank Failure in US History

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Washington Mutual was seized by the Federal Deposit Insurance Corporation (FDIC) Thursday evening, in what CNN Money is calling the biggest bank failure in US History. It appears as though JPMorgan Chase & Co. will acquire Washington Mutual for $1.9 billion. The deal was brokered to have JPMorgan Chase take over the company to avoid depleting the FDIC insurance fund, which is not expected to contribute any money in the deal.

What does this mean to Washington Mutual Customers?

This deal combines the operations of two banks and most customers should be completely unaffected by this deal. Friday morning should be the same as any other day and customers should still be able to access funds and maintain their normal banking privileges. Customers should not panic as the only thing really happening is a change on the letterhead on their statements.

Washington Mutual is also covered by FDIC insurance, but since the bank was basically absorbed by JPMorgan Chase, the FDIC insurance will not be used. Stockholders and some bond holders will lose the entirety of their investments.

This deal saves taxpayer money

Because the sale of Washington Mutual was brokered by the FDIC, the bank wasn’t allowed to fail to the point that the FDIC insurance was used. This could have cost taxpayers nearly $30 billions of dollars and depleted the FDIC deposit insurance fund. Instead, JPMorgan Chase purchased the bulk of Washington Mutual, including the bank’s deposits and loans, and it’s risky mortgage portfolio, which played a large role in WaMu’s failure.

It’s good to be WaMu’s CEO. According to the New York Times (update: this article now requires free registration to read), Washington Mutual’s CEO, Alan Fishman, who has been on the job for less than three weeks, is eligible for $11.6 million in cash severance and will get to keep his $7.5 million signing bonus.

OK, it’s really not good to be the Alan Fishman right now. He does get a lot of money out of his contract, but it really has to be heartbreaking to see your company falter so soon after taking the helm.


Published or updated February 27, 2011.
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{ 16 comments… read them below or add one }

1 Ron@TheWisdomJournal

Before everyone gets up in arms about the CEO getting a big payout, remember that he negotiated this package on the front end. Don’t blame him for getting a good deal, blame the board of directors, who were elected by the shareholders, for giving it to him.

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2 Ryan

Ron, I’m not blaming him either. He negotiated his deal based on the situation. Taking on the role of CEO for a bank with such large problems was both a challenge and a risk. Fortunately for him he shouldn’t be blamed for this mess and will probably remain highly employable (the bank was already going down and no one would have been able to stop it).

Interesting times.

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3 Miranda

Well, since taxpayers aren’t paying his package, I’m not terribly upset. Looks like if something has value, someone will purchase it. Do we really need government to buy some of the bad assets out there?

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4 Frugal Dad

WaMu is proof that the system works. I wish the President and others would scrap these bailout plans now and let the free market take over.

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5 Ryan

Miranda: I don’t have a problem with it either. I’d prefer to see more of this as opposed to more government intervention.

Frugal Dad: I agree 100%. The problem is, there may be too many problem banks and not enough banks that can spend the capital to assume the debt. But I would much rather see the free market work through this.

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6 Mrs. Micah

There are probably some very lucky WaMu customers who had more than their FDIC limits and now aren’t going to have to worry about it. I was glad to hear about the solution since it’s one less thing the taxpayers will be paying for. *crosses fingers*

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7 Eric

Kristin just wrote an article about the same topic over at Twenties Money Magazine. I’m hoping to get some further information about this come Monday from a friend of mine. His wife worked for WaMu and has been in meetings all day about what’s going on with everything. It is really startling to see all of these major banks going down while I sit and consider how I have a small town credit union. The thought does cross my mind; “well if these major banks are falling…where does my small bank stand.”

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8 deepali

I think if the CEO is running around making a mess of things and then gets a nice exit package, I wouldn’t be happy about that. But if he’s inheriting the problems and negotiates a good deal, can you blame him? I want a cushy package too for taking on big risk.

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9 Jarhead

OK so I just need to get a job as a CEO at a bank that is failing and I get millions of dollars. Great Job DUDE

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10 Ryan

Eric: You know, a lot of credit unions took on less risk than some of the larger banks, and as a result are doing fairly well. The problem that could happen is depositors making a run on their money and withdrawing their deposits. That can have a huge effect on any bank as well as the economy.

Mrs. Micah: I agree!

deepali: All I know about the CEO is the small blurb I read about his severance package and sign on bonus. I’m sure he was offered a fair market deal based on the amount of risk he was assuming (there is no way he could have run the company into the ground after only 3 weeks! ;) ).

Jarhead: When you figure out how to do that, let me know. ;)

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11 Ethan

I am personally delighted that Wamu failed. In 2001 Wamu bought the mortgage processing company I worked for promising that nothing would change. This was a relief to the many hadworking folks there, some of who had worked there for 30 yrs. Wamu set up a stand in the cafeteria selling Wamu logo hats, mugs etc. There were weekly meetings reassuring us. They told us how valuable we were and the depth of their commitment to ‘stay the course’. A few months later the doors were padlocked shut and the largest employer in town was gone for good. Fortunately for me, I had seen through all of their talk and found a job elsewhere before the shutdown. I know many in Wamu will walk away from this failure with pockets full of cash, some of it well deserved. On the other hand, I hope many of those in Wamu suffer, and severely, for the part they played in destroying the livelihood of hundreds of people I knew and the countless thousands I do not.

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12 Ryan

Ethan: I’m sorry to hear abut what WaMu did in your community a few years back. Undoubtedly, part of buying up businesses is consolidating operations to save on costs; it’s just unfortunate when it affects you or your community – especially if there is duplicity involved. It’s likely that many of WaMu’s centers will be consolidated in the coming months as JPMorgan Chase takes inventory of the operations and decides how best to consolidate them to improve operations and efficiency. I’m sure quite a few people will lose their jobs as well, which is something I don’t wish on anyone.

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13 shareholder, California

This is a sad day for all of us shareholders and employees of WaMu… we were robbed blind by the feds and no one said or did anything. Chase, like other firms were circling like vultures, waiting for the feds to move in. They all knew what was going on… this was the plan from beginning on the week of the take over…

The run on the bank was caused by the media and not one agency thought of regulating them or to set the record straight… they let the run on the bank happen right in front of their eyes.

Former CEO Kerry Killinger was so selfish and dumb enough not to sell at $8 per share before turning to TPG and investors for money. He was too concerned about his own legacy and income that he forgot what his job functions were and who he wrote his paychecks. Oh and he was paid over $22 million in separation package.

And now Alan Fishman will get paid over $18 million dollars for three weeks of work? humm… since he failed to do his job as a CEO to secure the company… should he be compensated $18 millions?

Oh and Stephen Rotella (President and COO) is getting his $12 million plus package for doing what? Running WaMu into the grounds? This is on top of his millions in bonuses.

Are they serious? We need to stand up… Open up your eyes people… this just doesn’t happen over night.

Everyone in the executive team of WaMu should be held accountable along with the feds who led this take over without any recourse or consideration for the employees’ retirements, public pensions and share holders.

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14 Ryan

shareholder, California: I agree, this is not a great situation for for shareholders or employees, unless you happen to be one of the guys at the top (assuming they don’t get investigated by the feds). It is true Fishman will receive his large bonus and severance package for only 3 weeks work, but to be honest, I don’t think that is unfair. He was assuming the helm of a sinking ship and he negotiated a deal that compensated him according to the risk he was assuming. I don’t think anyone could have foreseen the ship sinking in only 3 weeks. In the end, you can’t blame him for accepting the deal that was offered to him by the board of directors, who were elected by the shareholders. I hope that people running other fiancial institutions make note of the errors WaMu made and make the effort of preventing the same thing from happening again.

I thank you for sharing your views.

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15 James Terry

I invested about $200,000 in WM stock. First bought when in was about $25.00. What recourse do I have to get anything back? Is there any action against any of the officers D&O etc? Is anyone suing any of the officers? Why didn’t the FDIC let another company buy WM before the takeover? Appreciate anything to help me recoupe. Thanks

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16 Ryan

James: I’m sorry, but there is nothing I can do for you regarding your stocks. The last I heard, WaMu stock had little value. Here is the best information I could find: http://seattlepi.nwsource.com/business/381253_wamu01.html

I wish you the best.

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