Washington Mutual (WAMUQ)

NPR  Dec 8  Comment 
Ending a run of more than 30 years on the air, talk show host Diane Rehm plans to retire after the 2016 elections, according to WAMU, the NPR member station where her show is produced.
NPR  Oct 26  Comment 
Ed Walker died Monday after signing off his long-running show, The Big Broadcast, for the last time. The show, heard out of NPR member station WAMU, reprised programs from the golden age of radio.
Yahoo  Jul 1  Comment 
In September 2008, JPMorgan Chase & Co executives sifted through the rubble of Washington Mutual, the failed home loan bank that they had just won in a U.S. government auction. "It was an unexpected bonus," JPMorgan Chief Executive Jamie Dimon...
Wall Street Journal  Jun 3  Comment 
The legal victory over the FDIC will help it in efforts to avoid billions of dollars in potential liabilities from its purchase of Washington Mutual’s banking operations.
Wall Street Journal  Jun 1  Comment 
Two of Washington Mutual’s former top executives are still looking for their “golden parachutes.”
SeekingAlpha  Dec 30  Comment 
Wall Street Journal  Dec 23  Comment 
A bankruptcy judge tied up a remaining loose end from the 2008 collapse of Washington Mutual Bank, endorsing a $37 million settlement of the company’s claims against its former leaders.
Clusterstock  Nov 7  Comment 
By Jonathan Stempel and Nate Raymond NEW YORK (Reuters) - Bank of America Corp and US Bancorp have reached a $69 million settlement of litigation over their roles as trustees for securities backed by home loans from Washington Mutual Inc, which...
SeekingAlpha  Mar 24  Comment 
By Troy Racki: March 19th marked the two-year anniversary of Washington Mutual's (OTCQB:WMIH) emergence from bankruptcy, signaling a possible new future for the 119-year-old former banking giant and its diehard shareholders. Brought down in...
TheStreet.com  Feb 13  Comment 
NEW YORK (TheStreet) - Stephen J Errico of hedge fund Locust Wood Capital Advisers expects KKR's next buyout deal could come from the publicly-traded shell of Washington Mutual, the failed thrift lender whose assets and liabilities were acquired...


Washington Mutual (NYSE: WM) was a leading U.S. commercial bank ($14.2 billion in net revenue in 2007) providing retail banking, credit card services, commercial services, and home mortgage originations and services. The company filed for Chapter 11 bankruptcy on September 28, 2008 making it the largest bank failure in US history. As of December 24, 2008, claims against WaMu totaled more than $7.8B with assets of only $4.8B.[1]

The company had 2,257 stores in the US. and was the third-largest mortgage originator with a 7% share of the total market. Despite attempts to diversify its loan portfolio, nearly 67% of Wamu's current loans were mortgages. This has been a point of concern through 2007 and into 2008 as credit conditions worsened and U.S. home prices began to decline. WaMu has taken steps to avoid or reduce its exposure to subprime lending, steering clear of the high risk mortgages that collapsed other lenders and banks.

The Lehman Brothers (LEH) bankruptcy triggered a bank run on WaMu's deposits; between September 15, 2008 and September 28, 2008 its depositors withdrew $16.7 billion, dropping its reserves almost ten percent from just three months prior. The bank ran dry and was seized by the Federal Deposit Insurance Corporation (FDIC) on September 25, 2008.

On September 26, 2008 J P Morgan Chase (JPM) agreed to pay $1.9 billion to the Federal Government for WaMu's operations and loan portfolio.

Business Segments

Retail Banking

WaMu’s over 2,200 banking branches nationwide provide a full array of retail banking products for consumers and small businesses. In addition to offering deposit hold services, WaMu also offers annuities, private investment advisory and brokerage services, home equity loans, lines of credit, and related retail banking products. By and large, the Retail Banking segment is WaMu's most significant, accounting for 59% of its net revenue in 2007.

Because of difficulty in increasing the volume of its deposits in lower branch concentration areas such as Chicago and Atlanta, WaMu has held a relatively smaller share of the total domestic market compared to some of its larger peers, though its Retail Banking division did grow deposits by 3% in 2007 to an average of over $144 billion. Despite relatively smaller market share, WaMu’s acquisition of Commercial Capital in 2006 and Providian in 2005 has increased cross-selling opportunities for its Retail Banking segment. As a result, the average number of WaMu products used by a checking account customer of two years was 7.2 as of 2007. Plans to expand further in high branch concentration areas such as California and Texas will additionally increase these cross-selling opportunities.

Card Services

Accounting for 21% of WaMu’s 2007 net revenue, the Card Services segment of WaMu takes on the responsibility of originating and servicing credit card loans. As the eighth-largest card issuer in the United States managing over $27 billion in assets, Card Services's credit card loans have grown at a 13% compound annual growth rate (CAGR) since the acquisition of Providian in 2005, compared to a CAGR of 8% prior to the acquisition.


The Commercial Group provides financing to developers and contractors for the creation and acquisition of multifamily units, office complexes, and other commercial properties. WaMu services all loans that originate through the Commercial Group; with the acquisition of Commercial Capital Bancorp, the multi-family loan portfolio has grown to over $31 billion, establishing WaMu as the nation’s leading multi-family lender.

Home Loans

WaMu’s Home Loans Group, the third-largest mortgage originator in the U.S. with a 7% share of the domestic market, offers various mortgage products including fixed-rate, adjustable-rate, hybrid, and pay-option adjustable-rate mortgage loans. In early 2006, the Home Loans Group was strategically focused on building its non-traditional mortgage origination and investment; in particular, the Home Loans portfolio consisted of 46% option-adjustable rate mortgages (option-ARMs) and 11% subprime mortgages.

By the end of 2006, current management had taken note of slowing growth in housing markets and significantly reduced nontraditional mortgage origination and portfolio weight, as shown by its sale of nearly all subprime mortgage originations and a $2.4 billion decrease in the value of subprime mortgages in WaMu's total portfolio. By mid-2007, when the subprime lending industry collapsed and mortgages began entering default, WaMu had taken these and other steps to limit its exposure, though the Home Loans division did report a net loss of $2.46 billion in 2007.

Annual income data, in millions [2] 2003 2004 2005 2006 2007 6M08
Net Interest Income $7,865 $7,411 $8,218 $8,121$8,177 $4,471
Loan Loss Provision $42 $209 $316 $816 $3,107 $9,423
Non-interest Income $5,437 $4,061 $5,097 $6,377 $6,042$2,129
Net Income $3,880 $2,878 $3,432 $3,558 ($67)($4,466)

Business Drivers

Mortgage Market

As it was founded in 1889 to facilitate the rebuilding of Seattle, WaMu has long been a leader in the mortgage origination and service market. In general, the mortgage industry is heavily influenced by conditions in both the housing and credit markets, which means that poor conditions in either of the two will negatively impact WaMu's revenue and profits. As such, WaMu is faced with the task of monitoring these markets closely, anticipating upcoming downturns or booms, and adjusting the composition of its mortgage portfolio accordingly. Unexpected changes in the housing or credit markets, which often cannot be foreseen, can significantly impact WaMu's bottom line.

  • Housing Market: As a mortgage originator, WaMu is negatively impacted by housing slumps and the lower demand for new mortgages that they cause, while upturns in the housing market can boost revenue and profit substantially. Sparked by the subprime lending bust, the U.S. housing market from 2007 into 2008 has been in a considerable slump, with real estate prices falling a record 1.7% from the fourth quarter of 2007 to the first quarter of 2008.[3] Falling real estate prices indicate decreased demand, which leads to decreased demand for WaMu's mortgage origination services. Additionally, any properties repossessed by WaMu in the event of foreclosure will be worth less, making it harder for it recoup its money.
  • Credit Market: In an environment of increasingly poor credit and bank regulation of non-traditional mortgages, the profit margin in originating sub-prime and option-ARM mortgages has narrowed. As a result, WaMu has tightened its underwriting standards for these mortgages, restructured its home loans by placing less weight on sub-prime mortgages, and has sold nearly all of its sub-prime originations.

In addition, WaMu has ceased origination of government guaranteed loans and shifted focus on higher margin mortgage products such as home equity, Alt A, and options-ARM mortgage loans.

Interest Rates

Historically, deposit taking banks generated profits by collecting cash deposits, holding a percentage of those deposits (as dictated by the Federal Reserve) in bank reserves, and issuing leveraged loans. The interest payments paid by the bank on deposits and paid to the bank on loans are dictated by the yield curve. In general, the yield curve is an increasing, concave expression of interest rate as a function of time. Because, under normal conditions, the short term interest rates tend to be lower than the long-term interest rates, banks give short-term interest rates for deposits and charge long-term interest rates for loans; the difference between these two interest rates is called the interest rate spread, which is a main source of profit for banks like WaMu.

Industry Analysis

Primarily a savings and loan bank, WaMu's main focus is on retail banking, commercial lending, and originating and servicing mortgages. By maintaining customer-friendly environments in local branches and offering services such as providing loans to small businesses and free checking, WaMu has established itself as one of the major savings and loan providers in the Texas, California, and New York areas. WaMu's major competitors are Countrywide Financial (CFC), Wells Fargo (WFC), J P Morgan Chase (JPM), Citigroup (C), and Bank of America (BAC); of these, Countrywide and Wells Fargo most directly compete with WaMu's mortgage business, whereas JP Morgan, Citi, and Bank of America are much larger, diversified financial services firms. Bank of America will, however, become a much greater direct competitor after it completes its acquisition of Countrywide.

On 25 September 2008, Washington Mutual was acquired by JP Morgan Chase as WaMu faced existence crisis due to huge subprime defaults.

On 01 May 2009, Washington Mutual asked a U.S. bankruptcy court to let it probe whether JPMorgan Chase & Co had unlawfully damaged its former thrift unit's assets in order to buy it "on the cheap," at $1.9 billion. Washington Mutual has also initiated a $13 billion lawsuit against the Federal Deposit Insurance Corporation in case Washington Mutual Inc v. Federal Deposit Insurance Corp, U.S. District Court for the District of Columbia, No. 09-00533

$$, Billions
Mortgage Origin. Vol. Mortgage Portfolio Card Loans Avg. Total Deposits Retail Branches
Washington Mutual 105.3 756.6 21.1 203.8 2,201
Countrywide Financial (CFC) 220.0 1,196.7 0 58.6 993
Wells Fargo (WFC) 206.6 1,116.6 18.9 254.2 2,430+
J P Morgan Chase (JPM) 92.1 639.6 136.4 200.8 2,600+
Citigroup (C) 84.1 480.6 109.2 260.0 3,000+
Bank of America (BAC) 80.8 391.3 142.4 632.0 5839


  1. MSN Money: "Claims against WaMu now total $7.8B" 24 Dec 2008
  2. WM 2007 10-K, page 24
  3. Home Prices Post Record Declines In First Quarter - CNBC.com
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