The Downfall of Washington Mutual

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Case Details:

Case Code : BSTR328
Case Length : 17 Pages
Period : 2006-08
Pub Date : 2009
Teaching Note :Not Available
Organization : Washington Mutual Inc. (WaMu)
Industry : Banking & Financial Services
Countries : USA

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"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"¹

- 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."²

- 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)³, were taken over by the Office of Thrift Supervision (OTS)⁴ and placed into receivership with the Federal Deposit Insurance Corporation (FDIC)⁵ (Refer to Exhibit I for information on the top ten bank failures in the United States).

The action came after a 10-day run⁶ on the WaMu Bank that saw customers withdrawing US$ 16.7 billion (equivalent to 9% of the deposits held as on June 30, 2008).

The Downfall of Washington Mutual - Next Page>>

1] Jim Cole, "Wamu Eyes a Return to Rapid Asset Growth," www.americanbanker.com, August 27, 2007.
2] Kirsten Grind, "Insiders Detail Reasons for Wamu's Failure,"Jacksonville Business Journal, January 29, 2009.
3] WaMu owned two banks. One was the Washington Mutual Bank in Henderson, Nevada, and a subsidiary of that bank, Washington Mutual Bank, FSB, in Park City, Utah. Both of them together are referred to as WaMu Bank.
4] The OTS was established on August 9, 1989, as an agency of the Department of Treasury, United Sates. It is in charge of the supervision of the national thrift industry.
5] The FDIC was established in 1933 by the Glass-Steagall Act. It is an independent agency of the US government. It insures deposits in savings, checking, and other deposit accounts for at least US$ 250,000.
6] A bank run occurs when a large number of bank depositors withdraw money from a bank within a short period of time, believing that the bank might go insolvent.

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