Corker challenged Mr. Volcker's stance in today's congressional
hearings on the Volker Rule by saying that no financial holding company
that had a commercial bank failed while performing proprietary
trading. It appears as if Mr. Cofker may have received his information
from the banking lobby, and did not do his own homework.
reference the largest commercial bank/thrift failure of the all. First
off, a little historical reference courtesy of WSJ.com:
The collapse of the Seattle thrift,
which was triggered by a wave of deposit withdrawals, marks a new low
point in the country's financial crisis...
The seizure was
another watershed event in a frenetic period for the U.S. banking
system, and came while members of Congress wrangled over the Bush
administration's proposed $700 billion bailout package. The tally of
U.S. financial giants that have either been seized by the government or
sold themselves off to stronger firms in recent weeks includes
mortgage titans Fannie
Mae and Freddie
Mac, insurer American International Group Inc., and Wall Street
firms Lehman Brothers Holdings Inc. and Merrill Lynch & Co.
failure of WaMu eclipsed what had long been America's largest bank
bust on record, the 1984 collapse of Continental Illinois, which had
$40 billion in assets.
The seizure of Washington Mutual is
likely to send tremors through the thrift industry. Many of WaMu's
smaller brethren are also struggling with a wave of bad loans and some
have already been ordered by regulators to raise capital and stop
growing. Many community and regional financial institutions are also
slashing dividends, selling branches and reining in lending in order to
While WaMu has been struggling since last
year, its demise occurred with breathtaking speed.
Sept. 15, the day that Lehman filed for bankruptcy protection, WaMu's
customers began heading for the exits. Over the next 10 days, they
yanked a total of $16.7 billion in deposits, according to the Office of
Thrift Supervision. That was about 9% of the thrift's deposits as of
June 30. WaMu declined to comment...
In March, with the credit
crisis in full bloom, J.P. Morgan offered to acquire WaMu but was
spurned in favor of a $7 billion infusion led by the private-equity
firm TPG, considered one of the savviest buyout firms. TPG, led by
investor David Bonderman, said it will lose $1.35 billion, wiping out
"Obviously, we are dissatisfied with the loss
to our partners from our investment in Washington Mutual," said a TPG
spokesman. "The unprecedented turmoil in global financial markets and
resulting macro crisis of confidence has radically changed the dynamics
for all financial institutions, and led to widespread losses among
investors throughout the sector." TPG said its losses are about $1.35
billion, wiping out its investment....
Regulators also hustled
to shut down WaMu faster than they have with other failing banks this
year. Normally, when the FDIC and another regulatory agency are
preparing to take over a bank, the FDIC will solicit bids for the bank
on Tuesday or Wednesday and then seize it on Friday evening, after the
bank's branches have closed for the weekend. Sometimes the FDIC will
even wait another week to step in. Every bank to fail this year has
been shut down on a Friday. The FDIC steps in on Fridays to ensure a
smooth transition so that customers hardly notice the handover.
WaMu's case, the FDIC set a Wednesday evening deadline for interested
parties to submit their offers for various parts of WaMu. Twenty-four
hours later, they were already preparing to seize the bank. Earlier
this month, Treasury Secretary Henry Paulson made it clear to WaMu that
the company should have accepted the takeover deal J.P. Morgan had
offered earlier this year, according to a person close to WaMu.
pressure mounted on WaMu over the past two and a half weeks,
regulators sparred over how to handle the situation, according to people
familiar with the matter. Last week WaMu met in Washington, D.C., with
the FDIC and OTS, WaMu's chief regulator. WaMu, according to a person
familiar with the situation, asked for the meeting because it had
received conflicting information from the two agencies. The tension
between the two groups was palpable, this person said. The FDIC, this
person said, was more aggressive in describing the information it wanted
from the thrift.
Federal regulators said the exodus of deposits
left WaMu "with insufficient liquidity to meet its obligations." As a
result, WaMu was in "an unsafe and unsound condition to transact
business," according to the OTS.
The OTS closed WaMu on Thursday
and appointed the FDIC as receiver. The FDIC ran the bidding process
that resulted in the decision to sell WaMu's banking operations to J.P.
"The housing market downturn had a significant impact
on the performance of WaMu's mortgage portfolio," said OTS director
John Reich. [which was actively traded on a proprietary
basis, hence the pertinence of the Volcker Rule]
mortgage losses mounting and its stock price plunging, WaMu has been
scrambling over the past month to find a solution. Last week, it put
itself on the auction block. A number of banks -- including Citigroup
Inc., Wells Fargo and Banco
Santander SA -- pored over WaMu's books, but the bank didn't
receive any offers. This week, WaMu's outside bankers approached a
group of private-equity funds to gauge their interest in a deal. Those
talks were viewed as a last-ditch effort.
article above was date SEPTEMBER 26, 2008. I warned my blog readers
about Washington Mutual in September of 2007, and was short the stock
from that point until its demise. Reference "Yeah,
Countrywide is pretty bad, but it ain’t the only one at the subprime
party… Comparing Countrywide to its Peers", Saturday, 08 September
From my experience, there is
evidence of this from Lehman Brothers, Washington Mutual and
potentially IndyMac Bank as well. I am fairly sure that there are
surprises to be had from all three of these banks as well in the
upcoming quarters, big surprises. These practices were supported
indirectly by Citibank, Lehman Brothers and Wamu through their
warehouse credit lines to subprime mortgage banks, most of which have
gone out of business or scaled down operations...
nonperforming loans have doubled from the June 30th quarter
of ‘06 to the most recent quarter, from .62% to 1.29%, but excludes
"Excludes nonaccrual loans held for sale". My best guess is that these
are the loans that have not been earmarked for the investment
portfolio, and are being held for sale, thus are not held under the
accrual accounting rules. If this is the case, these numbers were
delivered just before the massive upheaval in the markets where
investors totally shunned the MBS products. If my hunch is correct,
then "Excludes nonaccrual loans held for sale" category will be forced
into the investment portfolio, and this may look bad. The banks tried
to sell off the garbage, and Wamu wrote its fair share of it. Reference
arm product which was not only an annual (and monthly)
arm product, but gave the payer the option to go negative amortization
(pay a portion of the interest and allow the rest to get tacked onto
Even in reclaiming the property
through foreclosure, Wamu will take a BIG loss on these. Wells Fargo
shows a large amount of Level 3 gains in their latest earnings report.
Level 3 gains are those market to myth (I mean model) profits that are
derived from modeling a price in lieu of obtaining it from the market
place. They may be force to keep these on the books for a long time
and/or take significant losses on them. More on Wells Fargo later...
think Wamu got stuck with a lot of this stuff... Unlike Countrywide,
Wamu appears to have adequate liquidity due to a larger and more
diversified thrift business, but that doesn't mean that they ain't
going to lose a lot of money on their less than prudent lending
practices. Their tangible equity to total capital is 6.07%, but
includes the footnote "Excludes unrealized net gain/loss on
available-for-sale securities and derivatives, goodwill and intangible
assets (except MSR) and the impact from the adoption and application of
FASB Statement No. 158, Employers' Accounting for Defined Benefit
Pension and Other Postretirement Plans, as of December 31, 2006.
Minority interests of $2.94 billion for June 30, 2007, $2.45 billion for
March 31, 2007 and December 31, 2006 and $1.96 billion for September
30, 2006 and June 30, 2006 are included in the numerator." Now this is
scary, for these are most likely the derivatives that have no credible
bid, thus cannot be priced and/or marked to market. Exactly what is the
unrealized net gain/loss and how is it derived? We're talking 20.1
billion in subprime, and almost 30 billion in multi-family loans with a
total of 206.7 billion dollars of loans in their portfolio. Wamu does
not want high defaults or the impairment of their collateral. I think
both are a forgone conclusion due to the aggressive underwriting to
obtain these loans, specifically through the Option ARM product. How
much so is the question. The Home Loans group within Wamu has taken
consistent losses for the last 4 quarters, primarily due to provisions
for losses and non-interest expenses.
Now, on to the importance of the Volcker Rule since we
have put WaMu into historical perspective.
Hires John Drastal as Managing Director of Trading for WaMu Capital
Publication: Business Wire
Monday, November 18 2002
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SEATTLE--(BUSINESS WIRE)--Nov. 18, 2002
WaMu Capital Corp., a fixed-income institutional
broker-dealer and subsidiary of Washington Mutual, Inc. (NYSE:WM), has
hired John Drastal as the managing director of trading.
Drastal will oversee all fixed income trading and risk
management within the firm, and will act as primary contact within the
"John will play a key
role as WaMu Capital Corp. continues to build out its mortgage and
securitization platform," said Tim Maimone, president, WaMu Capital
Corp. "Over the next year we expect to strategically grow our sales and
trading operations. We also plan to open a New York sales
office to complement our current offices in Seattle and Los Angeles."
Drastal brings a wealth of Wall Street experience to the
broker-dealer. Prior to joining WaMu Capital Corp., Drastal spent five
years as managing director and principal for Donaldson, Lufkin and
Jenrette, where he was responsible for all aspects of the mortgage and
asset-backed security trading business, including position and risk
management, personnel, distribution, research, finance, operations and
new business development.
In his 14 years
of experience in fixed-income trading and management, Drastal has also
held senior positions at Goldman Sachs and Company, Lehman Brothers
Inc. and Drexel, Burnham and Lambert. Drastal holds a master's
degree in industrial administration (MBA) from Carnegie Melon
University and earned a bachelor's degree in computer science from the
University of Delaware.
About Washington Mutual
With a history dating back to 1889, Washington Mutual is a
national financial services company that provides a diversified line
of products and services to consumers and small- to mid-sized
businesses. At September 30, 2002, Washington Mutual and its
subsidiaries had assets of $261.10 billion. Washington Mutual currently
operates more than 2,500 consumer banking, mortgage lending,
commercial banking, consumer finance and financial services offices
throughout the nation.
It is truly unfortunate that
such misinformation and disinformation is allowed to permeate through
not only the media, but actual congressional hearings. It is truly a
shame. If I am not mistaken, WaMu was the biggest bank/thrift failure,
EVER! If anything, this should provide momentum BEHIND the Volcker Rule
in lieu of having politicians trying to out-regulate an accomplished
regulator on how to regulate banks.