Ex-chief says WaMu was ‘bargain price’
By Stephanie Kirchgaessner in Washington and Francesco Guerrera in New York
Published: April 13 2010 17:50 | Last updated: April 14 2010 01:05
Kerry Killinger, former chief executive of Washington Mutual, the failed savings and loan, on Tuesday accused US policymakers of wrongly seizing the bank in 2008 and selling it at a “bargain price” of $1.9bn to JPMorgan Chase.
Mr Killinger told a congressional panel investigating the bank’s demise that the $300bn lender was a victim – not a cause – of the financial crisis, having been intentionally excluded in the weeks before its sale from hundreds of discussions between Wall Street executives and officials who “ultimately determined the winners and losers in this financial crisis”.
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In depth: US banks - Apr-12.WaMu risky loans ‘riddled’ with fraud - Apr-13.Mortgage rush that tipped the balance - Apr-14.US banks in line to deliver strong results - Apr-11.US lenders face crucial reforms - Apr-07..“For those that were part of the inner circle and were ‘too clubby to fail’, the benefits were obvious. For those outside the club, the penalty was severe,” Mr Killinger said in testimony before the Senate permanent sub-committee on investigations.
He said that when WaMu’s board moved to replace him in September 2008, the company’s capital “greatly exceeded regulatory minimums”, its liquidity “appeared satisfactory” and its chief regulator, the Office of Thrift Supervision, had not directed it to seek a merger partner.
“I believed that the company was in a relatively good position to survive the crisis,” Mr Killinger said.
However, the former chief executive acknowledged that with the housing market deteriorating in early 2008, WaMu had looked for a buyer or an outside investor to provide capital. Eventually, WaMu raised $7.2bn from investors including Texas Pacific Group in April.
In e-mails released on Tuesday, Mr Killinger also expressed scepticism about hiring Goldman Sachs as an adviser in October 2007, as WaMu sought to evaluate its options. Mr Killinger said in one e-mail that he did not trust “Goldy”, as he called the bank.
“They are smart, but this is swimming with the sharks,” Mr Killinger wrote. “They were shorting mortgages big time while they were giving CfC [Countrywide Financial] advice. I trust Lehman more for something this sensitive. But we would need to assess whether they have the smarts we need.”
Goldman Sachs declined to comment on Mr Killinger’s remarks about it selling mortgage securities short.
However, people close to the bank said that, throughout the financial crisis, Goldman traded largely according to its clients’ orders in various areas of the mortgage market. JPMorgan also declined to comment.
Mr Killinger’s testimony contrasted with the picture of the inner workings of the bank drawn by congressional investigators and other former executives.
Carl Levin, Democratic chairman of the Senate sub-committee, said senior managers knew that WaMu and its subsidiary, Long Beach, engaged in lending practices marked by systemic and “extensive fraud” committed by staff who were wilfully “circumventing bank policy”.
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