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Washington Mutual (WAMUQ) |
| Revision as of 12:47, May 27, 2008 (edit) Mybikeisgreen4 - Sr. Director (Talk | contribs) (→History) ← Previous diff |
Current revision (09:21, May 3, 2012) (edit) (undo) Sam1980 - Analyst (Talk | contribs) (revert) |
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| - | [[Image:Washington_mutuallogo.png|left]] | + | {{chapter_11}} |
| - | Washington Mutual (NYSE: WM) is 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 has 2,257 stores in the US. and is the third-largest mortgage originator with a 7% share of the total market. | + | 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.<ref>[http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=ACBJ&date=20081224&id=9474681 MSN Money: "Claims against WaMu now total $7.8B" 24 Dec 2008]</ref> |
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| - | By creating a friendly and convenient environment for its clients and providing products such as free checking accounts, WaMu, as it is known by its customers, has managed to attract loyal customers; on average, a checking account holder with a two-year tenure at WaMu uses about 6.7 other WaMu products. | + | |
| - | + | ||
| - | Despite attempts to diversify its loan portfolio, nearly 67% of Wamu's current loans are mortgages. This ratio is 1.8 to 4.5 times that of its competitors. This has been a point of concern through 2007 and into 2008 as credit conditions worsened and [[U.S. Housing Market|U.S. home prices]] began to decline. WaMu has taken steps to avoid or greatly limit its exposure to fallout from the collapse of the [[subprime lending]] industry, choosing to stay away from the riskiest mortgages that are causing other lenders and banks to lose billions. Despite this, a general downturn in the [[U.S. Economic Cycles|U.S. economy]] will inevitably harm WaMu's bottom line, as its $67 million net loss for 2007 shows.<ref>[http://www.reuters.com/finance/stocks/incomeStatement?stmtType=INC&perType=ANN&symbol=WM.N Washington Mutual Inc Financial Statements | Stocks | Reuters.com]</ref> | + | |
| + | 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. Housing Market|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== | ==Business Segments== | ||
| - | ===Retail Banking=== | ||
| - | WaMu’s 2,200 banking branches nationwide provide a full array of retail banking products. In addition to offering deposit hold services, WaMu also offers annuities, private investment advisory and brokerage services, home equity loans, lines of credit, and a consortium of other retail banking products. By and large, the Retail Banking segment serves as the most lucrative, accounting for 71% of its earnings in the third quarter of 2006. | + | ===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 expanding deposits in lower branch concentration areas such as Chicago and Atlanta, WaMu had lagged behind the industry in with a 1.5% total retail deposit growth rate in 2006 and a decline in saving deposits and low-cost checking deposits of 4.8 %. | + | 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. |
| - | + | ||
| - | + | ||
| - | Despite low deposit growth, WaMu’s acquisition of Commercial Capital in 2006 and Providian in 2005 has increased retail banking cross selling opportunities. As a result, the average number of products a two-year deposit holding patron held jumped from 6.09 to 6.7 from September 2005 to end of 2006. Plans to expand further in high branch concentration areas such as California and Texas will additionally increase these cross-selling opportunities. | + | |
| ===Card Services=== | ===Card Services=== | ||
| - | Accounting for 22% of WaMu’s third quarter earnings in 2006, 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 $21 billion in assets, the Card Services segment has exhibited 13% compound annual growth rate (CAGR) in credit card loans since acquisition of Providian. Compared to the 8% CAGR of Card Services prior to acquisition, WaMu has clearly increased its cross-selling opportunities. | + | 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. |
| - | + | ||
| - | [[Image:3Q06.jpg|Third Quarter 2006 Earnings Contribution by Business Segment|thumb|400px]] | + | |
| - | [[Image:YTD.jpg|Year to Date Earnings Contribution by Business Segment|thumb|400px]] | + | |
| ===Commercial=== | ===Commercial=== | ||
| - | 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 $26 billion, establishing WaMu as the nation’s leading multi-family lender. | + | 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=== | ===Home Loans=== | ||
| - | WaMu’s Home Loans Group, third largest in the nation with a 7% mortgage origination and service market share, has been a long time originator and of various mortgage products including fixed-rate, adjustable rate, hybrid, and pay-option adjustable rate mortgage loans. Early in 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% sub-prime mortgages. | + | 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 mortgages|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 [[U.S. Housing Market|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. | ||
| - | Current management, however, has taken note of softening housing markets and by the end of 2006 had significantly reduced nontraditional mortgage origination and portfolio weight, as evinced by sale of nearly all sub-prime mortgage originations and a $2.4 billion decrease in sub-prime mortgage portfolio weight. Also, increased bank regulation of non-traditional mortgage products have and will continue to decrease the return opportunities. WaMu’s initially large position in these non-traditional mortgages have contributed to an overall loss for the Home Loans Group, resulting in a -3% net contribution to WaMu’s total earnings in the third quarter of 2006. | + | {| class="wikitable" align="center" |
| + | |- bgcolor="#ececec" | ||
| + | !Width="20" | | ||
| + | !Width="200"|'''Annual income data''', ''in millions'' <ref>[http://investors.wamu.com/irweblinkx/file.aspx?FID=1001140114&IID=102028 WM 2007 10-K, page 24]</ref> | ||
| + | !Width="85" align="center"|'''2003''' | ||
| + | !Width="85" align="center"|'''2004''' | ||
| + | !Width="85" align="center"|'''2005''' | ||
| + | !Width="85" align="center"|'''2006''' | ||
| + | !Width="85" align="center"|'''2007''' | ||
| + | !Width="85" align="center"|'''6M08''' | ||
| + | |- | ||
| + | | colspan="2"| '''Net Interest Income''' || align = "center" |$7,865 || align = "center" |$7,411 || align = "center" |$8,218 || align = "center" |$8,121||align="center"|$8,177 ||align="center"|$4,471 | ||
| + | |- | ||
| + | | colspan="2"| '''Loan Loss Provision''' || align = "center" |$42 || align = "center" |$209 || align = "center" |$316 || align = "center" |$816 ||align="center"|$3,107 ||align="center"|$9,423 | ||
| + | |- | ||
| + | | colspan="2"| '''Non-interest Income''' || align = "center" |$5,437 || align = "center" |$4,061 || align = "center" |$5,097 || align = "center" |$6,377 ||align="center"|$6,042||align="center"|$2,129 | ||
| + | |- | ||
| + | | colspan="2"| '''Net Income''' || align = "center" |$3,880 || align = "center" |$2,878 || align = "center" |$3,432 || align = "center" |$3,558 ||align="center"|($67)||align="center"|($4,466) | ||
| + | |} | ||
| ==Business Drivers== | ==Business Drivers== | ||
| ===Mortgage Market=== | ===Mortgage Market=== | ||
| - | As it was founded in 1889 to facilitate the rebuilding of a city in shambles, WaMu has long been a leader in the mortgage origination and service market. On aggregate, the mortgage market depends most on the current housing and credit markets. WaMu adjusted its Home Loans Segment portfolio composition of mortgages based on major fluctuations in either 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. |
| - | + | ||
| - | + | ||
| - | *'''[[Residential Real Estate Prices| Housing Market:]]''' As of late, WaMu is well posistioned to reap the benefits of rising house prices and rising demand of adjustable rate mortgages; at the end of the third quarter in 2006, WaMu had originated 8% of the floating adjustable rate mortgages. | + | |
| + | *'''[[Residential Real Estate Prices| 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.<ref>[http://www.cnbc.com/id/24774352 Home Prices Post Record Declines In First Quarter - CNBC.com]</ref> 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. | *'''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. | 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=== | ===Interest Rates=== | ||
| - | [[Image:NIM.jpg|Short Term/Long Term Interest Rate Time Series|thumb|400px]] | ||
| - | 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 net interest margin and spells profit for banks. | + | 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== | ==Industry Analysis== | ||
| - | Primarily a savings and loan bank, WaMu's main focus in the banking industry 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 services in the Texas, California, and New York areas. The major competitors within the industry by market capitalization other than WaMu are Countrywide Financial, Wells Fargo, JPMorgan, Citigroup, and Bank of America. | + | 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 | ||
| {| align = "center" | {| align = "center" | ||
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| | '''Washington Mutual''' || '''105.3''' || '''756.6''' || '''21.1''' || '''203.8''' || '''2,201''' | | '''Washington Mutual''' || '''105.3''' || '''756.6''' || '''21.1''' || '''203.8''' || '''2,201''' | ||
| |- align = "center" | |- align = "center" | ||
| - | | '''''Countrywide Financial''''' || 220.0 || 1,196.7 || 0 || 58.6 || 993 | + | | '''''[[Countrywide Financial (CFC)]]''''' || 220.0 || 1,196.7 || 0 || 58.6 || 993 |
| |- align = "center" | |- align = "center" | ||
| | '''''[[Wells Fargo (WFC)]] ''''' || 206.6 || 1,116.6 || 18.9 || 254.2 || 2,430+ | | '''''[[Wells Fargo (WFC)]] ''''' || 206.6 || 1,116.6 || 18.9 || 254.2 || 2,430+ | ||
| Line 77: | Line 88: | ||
| | '''''[[Citigroup (C)]]''''' || 84.1 || 480.6 || 109.2 || 260.0 || 3,000+ | | '''''[[Citigroup (C)]]''''' || 84.1 || 480.6 || 109.2 || 260.0 || 3,000+ | ||
| |-align = "center" | |-align = "center" | ||
| - | | '''''Bank of America''''' || 80.8 || 391.3 || 142.4 || 632.0 || 5839 | + | | '''''[[Bank of America (BAC)]]''''' || 80.8 || 391.3 || 142.4 || 632.0 || 5839 |
| |} | |} | ||
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| [[category:Financial Services]] | [[category:Financial Services]] | ||
| - | [[category:mature]] | ||
| - | [[category:Retail Banks]] | ||
| [[category:Savings & Loans*]] | [[category:Savings & Loans*]] | ||
| [[Category:Savings_&_Loans*]] | [[Category:Savings_&_Loans*]] | ||
Current revision
| This company has recently filed for protection under Chapter 11 of the U.S. Bankruptcy Code. |
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.
Contents |
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.
Commercial
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 |
References
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