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The Fall of Washington Mutual - Case Study Example

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This paper "The Fall of Washington Mutual" discusses WaMu that took great risks in lending to customers who were less than capable of taking on the debt they would incur. Its stock price was soaring and profit was skyrocketing during the mortgage boom…
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The Fall of Washington Mutual
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Download file to see previous pages However, the subprime crisis in the US market led the bank into trouble and its eventual collapse in September 2008. The bank was seized by the Federal Deposit Insurance Corporation and was sold off to JP Morgan Chase.

WaMu was the nation’s largest savings bank. It failed because it was reckless with its lending, obsessed with profits and disregarded rational lending standards. WaMu management teams believed that the subprime mortgage venture was worth the risk. They believed that the booming housing market would only get bigger, ignored straws in the wind evidenced by falling profits in the home loan business and/or increasing defaults, and supported homeowners in a cycle of borrowing and refinancing on the back of booming prices. When the housing bubble burst and the prices crashed resulting in massive defaults, WaMu suffered the consequences of its greed for risky profits and made all those who had reposed their faith in its business model and management to suffer.

WaMu was founded in 1889 and was initially called the Washington National Building Loan and Investment Association. It was renowned for its ability to adapt and to adopt strategies to suit customer requirements and technological innovations. The bank survived the 1929 economic crisis because it had amassed assets during the flush period. It pioneered the first shared cash machine network in the 1970s and helped the implementation of the Pay-by-Phone banking network. In 1982, after the acquisition of Murphy Favre, the oldest securities brokerage firm in the Northwest, WaMu continued to employ Kerry Killinger, who was the Executive Vice-president of Murphy Favre. Mr. Killinger became WaMu’s President in 1988 and CEO in 1990.

During the leadership of Mr. Killinger, the bank faced many problems such as lagging profits and earnings. To tide over the problems, Mr. Killinger planned new strategies and initiatives to ensure growth by servicing lower and middle-class customers, at a time when several other banks were withdrawing from retail service. WaMu opened up many new branches, patterned on department stores, in which the tellers were ready to help customers to conduct computerized transactions in a kind of self-service mode.  ...Download file to see next pagesRead More
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