Brandon Lee
Washington Mutual (WaMu) was once America's largest savings and loan association, with $188 billion in deposits, 43,000 employees, and 2,300 branches across 15 states. However, it collapsed in September 2008, becoming the largest bank failure in US history. So, is Washington Mutual Bank still in business?
| Characteristics | Values |
|---|---|
| Year of collapse | 2008 |
| Date of collapse | 25 September 2008 |
| Reason for collapse | Aggressive expansion into the sub-prime mortgage market |
| Nature of business | Savings and loan bank |
| Number of employees | 43,000 |
| Number of branches | 2,200-2,300 |
| Number of states in which it operated | 15 |
| Total deposits | $188 billion |
| Total assets | $307-$309 billion |
| Acquirer | JPMorgan Chase |
| Sale price | $1.9 billion |
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What You'll Learn
Washington Mutual's collapse in 2008
Washington Mutual (WaMu) was America's largest savings and loan association before its collapse and subsequent closure in 2008. The bank failed due to irresponsible lending and predatory loans, becoming the largest bank failure in US history.
WaMu was heavily involved in the mortgage sphere, originating and securitizing hundreds of billions of dollars in high-risk, low-quality mortgages. These subprime mortgages were at the heart of the financial crisis of 2007-2008, with banks assuming greater risk by lending to customers with less-than-perfect credit and charging adjustable rates of interest. WaMu's lending practices were "shoddy", including granting mortgages for larger loans than customers could afford and failing to perform due diligence on applicants.
The bank's troubles came to a head in September 2008. On September 11, WaMu shares plummeted to $1.75, and the company posted three consecutive quarters of losses totalling $6.1 billion. Customers began a bank run, withdrawing $16.7 billion in savings and checking accounts over 10 days, representing over 11% of WaMu's total deposits. On September 25, the Federal Deposit Insurance Corporation (FDIC) took over the bank and sold it to JPMorgan Chase for $1.9 billion. The next day, Washington Mutual Inc., the bank's holding company, filed for Chapter 11 bankruptcy.
The collapse of WaMu was a significant event in the 2008 financial crisis, and the bank's failure had a substantial impact on its customers, employees, and investors. The FDIC reassured WaMu's customers that their deposits were fully protected and that there would be no interruption in service. However, the failure resulted in job losses for the bank's 43,000 employees and significant financial losses for investors, with TPG Capital losing its entire $1.35 billion investment.
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JPMorgan Chase's acquisition of WaMu
Washington Mutual (WaMu) was an American savings bank holding company based in Seattle. It was the largest savings and loan association in the United States until its collapse in 2008.
On September 25, 2008, the United States Office of Thrift Supervision (OTS) seized WaMu's banking operations and placed them into receivership with the Federal Deposit Insurance Corporation (FDIC). The FDIC then sold most of the bank's assets to JPMorgan Chase for $1.9 billion in cash, plus the assumption of all secured debt and some unsecured debt.
JPMorgan Chase acquired all deposits, assets, and certain liabilities of Washington Mutual's banking operations, including qualified financial contracts. The acquisition excluded senior unsecured debt, subordinated debt, and preferred stock of Washington Mutual's banks. The deal expanded JPMorgan Chase's consumer branch network into California, Florida, and Washington, creating the nation's second-largest branch network.
The acquisition was part of JPMorgan Chase's strategy to increase its regional banking presence and strengthen its retail business. The company's CEO, Jamie Dimon, stated that the acquisition made "excellent strategic sense" and would benefit multiple business lines.
Following the acquisition, all WaMu branches were rebranded as Chase branches by the end of 2009. The holding company, Washington Mutual Inc., filed for bankruptcy the day after the acquisition.
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WaMu's lending practices
Washington Mutual (WaMu) was America's largest savings and loan association before it collapsed in September 2008. It had assets of $309 billion, with nearly half connected to the housing industry.
WaMu was also accused of rewarding loan officers for the volume and speed of loans approved, with little regard for the borrower's income and assets. The bank's employees were pressured to increase lending, with some describing the culture as "disgusting" and "disheartening".
During the late 1990s and early 2000s, WaMu aggressively expanded in the subprime mortgage lending field through the acquisition of existing mortgage companies. This included the acquisition of Long Beach Financial, a California lender specializing in subprime mortgages, and Alta Residential Mortgage Trust. By 2006, WaMu's home loan business had increased by 103%, and its flagship product, the option adjustable-rate mortgage, originated $42.6 billion that year.
WaMu's expansion into the subprime lending market and its focus on the volume and speed of loan approvals ultimately contributed to its collapse. As the Federal Reserve hiked interest rates, WaMu found itself with a significant number of high-risk, low-quality mortgages. This, combined with the housing market downturn, led to massive losses and, ultimately, the failure of the bank.
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The bank's history and early days
Washington Mutual, also known as WaMu, was incorporated as the Washington National Building Loan and Investment Association on 25 September 1889. Its formation came in the aftermath of the Great Seattle Fire, which destroyed 120 acres of the city's central business district. The company was dedicated to helping Seattle rebuild. It made its first home mortgage loan on the West Coast on 10 February 1890.
In 1908, the firm changed its name to the Washington Savings and Loan Association, modelling itself after the already-established mutual savings banks of the East Coast. It was now catering to small depositors who were "more interested in security than the chance of a big profit". By 1913, the number of accounts had increased almost sevenfold, and by 1917, it was operating under the name Washington Mutual Savings Bank.
In 1930, the company purchased its first company, the financially distressed Continental Mutual Savings Bank. Its marketing slogan for much of its history was "The Friend of the Family". In 1982, WaMu purchased the brokerage firm Murphey Favre and demutualized the following year, converting into a capital stock savings bank.
In 1994, WaMu reorganized as a holding company, Washington Mutual, Inc., separating the non-banking units from its primary banking unit, Washington Mutual Savings Bank, which was renamed Washington Mutual Bank. In 2005, WaMu purchased the credit card issuer Providian for approximately $6.5 billion. In 2006, the company moved into its new headquarters, WaMu Center, in downtown Seattle.
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The impact of the bank's failure
The failure of Washington Mutual Bank (WaMu) had a significant impact on various stakeholders, including customers, investors, employees, and the financial industry as a whole. Here is an overview of the key impacts:
Impact on Customers and Depositors
The failure of WaMu resulted in a significant disruption for its customers and depositors. Following the bank's closure, the Federal Deposit Insurance Corporation (FDIC) stepped in to facilitate the sale of WaMu's assets and deposits to JPMorgan Chase. FDIC Chairman Sheila Bair reassured WaMu's customers, stating that it would be a seamless transition and that depositors' funds were fully protected. This prompt action by the FDIC ensured that customers experienced minimal interruption in their banking services, and their deposits remained secure.
Impact on Investors and Shareholders
The collapse of WaMu had a substantial impact on its investors and shareholders. Many investors suffered significant financial losses as the value of their investments plummeted. For example, TPG Capital lost its entire $1.35 billion investment in WaMu. Additionally, the sharp decline in WaMu's share price, from a high of $45 in 2006 to $1.75 on September 11, 2008, wiped out a significant portion of shareholders' wealth.
Impact on Employees
The failure of WaMu resulted in widespread job losses. At the time of its collapse, WaMu had approximately 43,000 employees across 15 states. These employees found themselves facing an uncertain future as the bank's operations were absorbed by JPMorgan Chase. While some may have been absorbed into JPMorgan Chase's workforce, others likely faced unemployment or had to seek employment elsewhere in the financial industry.
Impact on the Financial Industry
The failure of WaMu sent shockwaves through the financial industry and highlighted the risky lending practices prevalent during the 2007-2008 financial crisis. WaMu became synonymous with subprime lending and the origination of high-risk, low-quality mortgages. Its failure exposed the vulnerabilities of the financial system and contributed to a loss of confidence in the banking sector. The fallout from WaMu's collapse led to increased regulatory scrutiny and a push for improved risk management practices across the industry.
Impact on Legal Proceedings
WaMu's failure also triggered a wave of legal proceedings and lawsuits. Various entities, including WaMu itself, JPMorgan Chase, the Federal Deposit Insurance Corporation (FDIC), and other parties, became embroiled in complex legal battles. These lawsuits involved disputes over asset seizures, indemnity claims, restitution orders, and regulatory and supervisory claims. The legal fallout from WaMu's failure lasted for several years, with settlements and resolutions playing out over time.
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Frequently asked questions
No, Washington Mutual (WaMu) is not in business anymore. It failed on September 25, 2008, and was acquired by JPMorgan Chase for $1.9 billion.
Washington Mutual failed due to a combination of factors, including aggressive expansion, irresponsible lending practices, and an overreliance on the housing market. The bank's expansion into sub-prime mortgages and its focus on high-risk, low-quality loans proved to be its undoing when the housing market cooled.
The failure of Washington Mutual had far-reaching consequences. It fueled the 2008 financial crisis, with the fall of WaMu followed by the collapse of investment banks Lehman Brothers and Bear Stearns. The Federal Deposit Insurance Corporation (FDIC) took over WaMu, facilitating its acquisition by JPMorgan Chase. WaMu's customers were reassured that their deposits were fully protected and that there would be no interruption in service.
