I’m a member of RMA–Risk Management Associates. At a monthly meeting I got a chance to hear a presentation by Kirsten Grind, the author of The Lost Bank: The Story of Washington Mutual–The Biggest Bank Failure in American History.
Kirsten was a writer for the Puget Sound Business Journal and covered the WaMu saga for the paper. After three hefty installments on the final demise of WaMu, Kirsten thought she was done with the story that had consumed her life for three years. In fact, she had just begun.
A literary agent heard an interview with Kristen on KUOW. That agent, Elizabeth Wales, urged Kirsten to write a book about the rise and fall of WaMu.
The book is well written and a pleasure to read. Anyone living in the Seattle area will appreciate the attention to detail and the many local references. Growing up in Seattle, I remember Tuesday was Bank Day at grade school. Almost every child would bring a deposit for their Washington Mutual savings account.
It is also well researched. Kirsten says she read over 10,000 documents as part of writing this book. Some of these documents came from government regulators, although these were often redacted to the point of having nothing of substance left. More useful were the documents gathered and the reports written by the U.S. Senate’s Permanent Subcommittee on Investigations.
Of course, the lessons of The Biggest Bank Failure in American History are also fascinating, especially to those of us who deal in business and finance on a daily basis.
When WaMu was closed by regulators and sold to J.P. Morgan Chase, the bank had been in existence for 119 years. The predecessor company, Washington National Building Loan and Investment Association, was formed in 1889, the same year Washington became a state, in response to Seattle’s great fire that had destroyed most of downtown.
But the modern history of WaMu started in 1981. The bank was in financial trouble and the trustees (they weren’t a board yet because Washington Mutual hadn’t gone public) were looking for a savior to step in. That job fell to Lou Pepper, an attorney from Foster, Pepper and Riviera (now just Foster Pepper) who had represented the bank for three decades.
Pepper had come to Seattle in 1951 as a young lawyer. A wise and humble man, he became the embodiment of WaMu. He assembled a capable team around him and the thrift got through its crisis and then thrived.
Kerry Killinger, arrived at WaMu as part of the acquisition of Murphy Favre in Spokane. Pepper had hand-picked Killinger to become his successor as CEO. Most of the executives were very down-to-earth in the Seattle style. It was the time when WaMu was known as “The Friend of the Family.”
Killinger put the bank on a buying spree and WaMu grew by acquisition. They developed a crack team for assimilating acquired organizations. They went on a tear and Wall Street loved them (they had converted to investor ownership and went public in 1983).
In 1997 and 1998, WaMu bought Great Western Financial and H.F. Ahmanson, which made them a financial powerhouse on the West Coast. In 1999, subprime lender Long Beach Financial was acquired and the seeds were sown for the eventual fall.
With a couple more acquisitions, WaMu became the nation’s biggest mortgage lender. Wall Street’s insatiable appetite for mortgages, especially subprime mortgages, led to pressure to produce. And they produced–profits for awhile and then enormous levels of defaults.
The slide took a few years but in 2008, after a run on the bank by depositors, WaMu was closed by regulators and sold to J.P. Morgan Chase.
Reading the book, there is plenty of blame to go around. Wall Street greed seems to be the common thread to these financial crises. The rating agencies didn’t do their job. Regulators could have been more diligent but actually come off pretty well in this book.
WaMu’s management style changed and the reckless approach to making mortgage loans was the biggest culprit in the failure of this Seattle institution. And Kerry Killinger, in the end, seems to be more responsible than any other individual. It was a sad end to this once fine bank.
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