The Rise & Fall of WaMu

Fascinating story last week in the Puget Sound Business Journal (Seattle), depicting the rise and fall of WaMu:

Here’s a quick excerpt:

“By 2001 — long before the housing bubble stretched dangerously, before most Americans had heard the term “subprime loan” — Killinger had created the fractures that would cause Washington Mutual to collapse in the largest bank failure in U.S. history.

The cracks, according to executives who were there at the time, would spread over the next 10 years, eventually rendering the 119-year-old bank that Killinger painstakingly built into the nation’s largest thrift too weak to withstand the greatest economic downturn of his career.

“By the time you got to the last couple of years, pretty much the destiny of the company had been locked in,” said one former executive. Killinger declined repeated requests to be interviewed . . .

That changed in 1999. As WaMu neared the height of its growth, Killinger, in awe of the management at companies like General Electric, shifted WaMu’s structure so his executive team no longer reported directly to him, executives said. Instead, he divided the bank into two autonomous units: consumer banking, headed by Oppenheimer; and mortgage banking, headed by Craig Davis, who had joined as part of the 1996 American Savings Bank acquisition, and was the first new blood to enter WaMu’s top executive ranks in years. Davis could not be reached for comment.

The management shift disrupted the system that had worked so well, and it inadvertently eliminated the checks and balances that existed when the executive team and Killinger had their hands in all operations at the bank, according to numerous executives. The change in structure was disclosed in a brief paragraph as an apparent afterthought in another stellar earnings report during the second quarter of 1999.

But for many company insiders, it was the beginning of the end.

“It turned out to be far, far bigger than we anticipated,” said Lannoye.

Management shake-ups happen all the time at companies, particularly those growing so rapidly. But, without exception, former and current executives interviewed for this article pointed to Killinger’s changes in the late 1990s as one of the chief causes of the company’s eventual downfall.

One of the main reasons is that it gave much more power to the company’s mortgage division and the executives who ran it over the next 10 years, executives said. Under the new structure, the mortgage unit operated more on its own, and its independence grew when Killinger gave it its own IT and human resources departments, executives said.

“The mortgage unit was responsible for its own bottom line,” said Lannoye. “The checks and balances were gone.”

The entire article is a good read.

Insiders detail reasons for WaMu’s failure
Kerry Killinger’s role
Kirsten Grind
Puget Sound Business Journal (Seattle), Friday, January 23, 2009

Full version here

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