Business Columns & Blogs

It’s time for WaMu story to be told

The lawsuits have been packed away in the dark recesses of filing cabinets, the signs are long gone from the buildings, and as each day passes Washington Mutual fades from discussion and memory.

Which is a curious fate for a company that, a few short years ago, was one of the nation’s largest financial-services firms and that, when federal regulators took it over in September 2008, became the largest bank failure in U.S. history.

Even at the time, WaMu’s demise represented little more than an “oh, by the way” footnote in the larger drama of the banking-sector debacle that signaled the start of a recession we’re still mired in. Attention was focused on the Wall Street and East Coast institutions deemed “too big to fail.” WaMu? Deemed “too insignificant to notice.”

That lack of attention will be somewhat redeemed this month with the publication this month of “The Lost Bank,” written by former Puget Sound Business Journal reporter Kirsten Grind.

“The Lost Bank” doesn’t offer shocking revelations, but it does provide some great anecdotal background on the dysfunctional executive-level corporate culture that fueled WaMu’s collapse. Example: On the day of the now infamous 2008 annual meeting (at which shareholders booed, heckled and denounced the board and management), WaMu’s directors were driven by car from the company’s headquarters to the meeting site in Benaroya Hall – a distance of one downtown block.

More importantly, “The Lost Bank” provides a useful case study and some perspective on how a company went from profitability, growth, accolades and a seemingly successful strategy to failure on a grand scale.

The disastrous foray into subprime lending rightly gets much of the blame. “The Lost Bank” details WaMu’s lust for loan volume regardless of loan quality, as well as abundant warnings about the risks it was generating.

But deeper questions abound: Could WaMu’s model of a middle-market consumer bank have worked? Was the flaw in its execution? Was management in over its head running a company the size of WaMu? Did it start believing its own news clippings? And what of Kerry Killinger, the enigma at the center of the drama? Did he go Hollywood, ignoring the looming debacle?

The book’s narrative suggests that it was all of that and a lot more. WaMu might have been able to clean up its act had it time, a favorable economic climate – and at least a bit of self-awareness of its problems.

It had none of the above, which leads to another big question: Could WaMu have been saved with the same sort of help extended to other financial insitutions?

Killinger said at the April 2008 shareholders meeting that in a year’s time people would look back and see a turning point. But the economy got markedly worse in 2009. The ugliness in WaMu’s sub-prime portfolio was spreading to its supposedly higher-quality loans.

WaMu was seized before it limped to the end of the third quarter of 2008, so we may never know the exact size of the loss it would have reported. But the word billion likely would have figured in the descriptor.

And in the quarters after that, all coming on top of successive quarters in which WaMu had reported billions of dollars in losses. There was no credible pathway to profitability or more capital for WaMu. For all the complaints about the seizure and sale of WaMu, JPMorgan Chase probably overpaid for what it got.

That’s a lot to ponder in a business tale that, for whatever reason, hasn’t had sufficient pondering devoted to it outside this region. If “The Lost Bank” brings some attention to the WaMu story, one lasting legacy of Washington Mutual will be to provide some valuable lessons and warnings about how not to build or run a business.