Sheila Bair told me she loves Seattle. She was here today to give a speech before the 67th CFA Institute Annual Conference at the Washington State Convention Center. But as chairman of the Federal Deposit Insurance Corp. during the panic of 2008, it was tough love as she was the driving force behind the closure of…More
Category: Washington Mutual
A few days ago, newspapers and the blogosphere were full of stories about the fifth anniversary of Lehman Brothers’ collapse. The more significant date for Seattle is today, when federal regulators seized and closed Washington Mutual resulting in the biggest banking failure in American history. WaMu’s assets were sold to JPMorgan Chase and 9,200 jobs were cut, including 3,400 at the giant thrift’s downtown Seattle headquarters. Shareholders were pretty much wiped out. The city lost its standing as a major financial center, no small thing in a financialized economy. And the blast wave spread out into the firms that were WaMu vendors, civic assets supported by WaMu, and scores of downtown retailers that depended on business from the highly paid headquarters employees.
Naturally, the executives who wrecked this 119-year-old institution — which had survived the Great Depression and the savings-and-loan collapse — got away with it. Kerry Killinger, the chief executive who presided over the dangerous subprime calamity, and was compensated handsomely for it, is even turning up around town again. Wall Street, which encouraged WaMu to keep shoveling subprime loans that could be bundled into securities, is doing better than ever. Move along, nothing to see here.
But there is. No justice, no peace of mind.More
It should be no surprise that Jamie Dimon won his bid to keep both the chairman and chief executive titles at JPMorgan Chase. The company and lead director Lee Raymond, himself a retired chairman and CEO of Exxon, lobbied shareholders hard. Dimon implied he might resign if he lost the chairman’s job. Scholars at the Stanford Graduate School of Business, looking at 20 years of data, put out a report claiming that splitting the two roles had little effect on stock price or future performance. Considering that relatively few major U.S. corporations separate the jobs — a practice corporate governance experts advise for proper checks on management power — this survey may be limited, but no matter. Most of all, JPM shares have been on a steady climb for the past year.
In the end, it wasn’t even close, even though Institutional Shareholder Services Inc. and Glass Lewis & Co., influential advisory firms to institutional investors, supported stripping Dimon of the chairman’s job and unseating directors on the risk committee. The resolution itself received 32 percent support from shareholders who voted, down from 40 percent for a similar resolution in 2012. Dimon himself received 98 percent of the vote for the board. And for all the sturm und drang leading up to today’s annual meeting in Tampa, the resolution was non-binding. The bank was not required to implement it.
On top of the stock price and the clubby group-think of boards and institutional investors, Dimon still has his aura. He ably led the bank through the worst financial crash since the Great Depression. He extended its national retail franchise by purchasing the good part of Washington Mutual during the crisis. Perhaps as important, he has tremendous influence in Washington and has probably been the most effective individual in keeping the Dodd-Frank “re-regulation” weak, championing the big banks and gutting an effort that would have put tighter controls on derivatives. Against all this, the $2 billion London Whale trading loss is not much when assayed by the big institutions that vote most of the bank’s shares. In addition, the board whacked Dimon’s compensation as penance, the head of the division responsible for the loss was forced out and some $100 million in compensation to the traders was clawed back. This is more accountability than many big companies provide.More
Jamie Dimon, chairman and chief executive of JPMorgan Chase and acquirer of Washington Mutual, may no longer be “America’s least-hated big banker” — admittedly a low bar. Last year, he presided over the “London Whale” trading fiasco, a bet gone wrong that cost the bank $6.2 billion. Investigation of the disaster further tarnished the bank’s once glowing reputation. Both the Federal Reserve and the Office of the Comptroller of the Currency censured JPM for poor oversight of its trading (read gambling) and also for lax controls against potential money laundering. A U.S. Senate subcommittee said the bank misled investors.
Now, Dimon is facing a proposal that the chairman and chief executive officer jobs be separated, and three JPM directors not be re-elected when the firm holds its annual meeting May 21st. Institutional Shareholder Services, an investment advisory firm, has backed the initiative. ISS cited “material failures of stewardship and risk oversight.” The three directors targeted are David Cote, James Crown and Ellen Flutter, all on the board’s risk policy committee.
Not to worry. Even Warren Buffett has ridden to Dimon’s defense, telling CNBC that Dimon should keep both jobs. In his annual letter to shareholders, which came out last month, Dimon wrote that the Whale “was extremely embarrassing, opened us up to severe criticism, damaged our reputation and resulted in litigation and investigations that are still ongoing.” He promised to do what it takes to make JPM “the safest and soundest bank on the planet.” But earlier this year he threatened to leave if he loses both jobs, and that worries the Wall Street conventional wisdom, which holds that Dimon is indispensable. Also, note how a similar effort to separate the two jobs turned out at Boeing. At least JPM’s board forced Jamie to take a one-year pay whack to show some accountability.More
The newest hire in the mail room of Boeing’s headquarters could have done as good a job as Jim McNerney last year, as the radical outsourcing he oversaw and encouraged led to the grounding of the 787 Dreamliner. Even so, Boeing’s lapdog board gave McNerney a 20 percent raise, to $27.5 million. At least Jamie Dimon, CEO of JPMorgan Chase had his pay cut in half, to a pauperish $11.5 million for the “London Whale” trading debacle. But a new Senate report shows how Dimon, supposedly America’s smartest and most prudent banker — the guy who bought Washington Mutual for chump change — is presiding over a financial system every bit as dangerous as the one that brought on the Great Recession.
Gretchen Morgenson of the New York Times writes:
Its pages of e-mails, testimony, telephone transcripts and analysis show that traders in the bank’s chief investment office hid money-losing derivatives positions, if only temporarily; that risk limits created by the bank to protect itself were exceeded routinely; that risk models were changed to minimize losses; that bank executives misled investors and the public; and that regulations are only as good as the regulators enforcing them.
Why do Dimon or McNerney still have jobs? Because the cult of the imperial CEO is alive and well, despite the executive malpractice and outright fraud that brought on the 2000 recession (Enron, HealthSouth, Tyco, etc. etc.) as well as the financial crash of 2008. They do whatever they want. Politicians quail before their contribution-bearing lobbyists. Boards are worthless. The message to average Americans who lost jobs, net worth and economic mobility: In your face.More
Sheila Bair, head of the Federal Deposit Insurance Corp. during the financial crisis, has a new book out, Bull By the Horns. I haven’t read it, but early reports have it especially twisting the shiv into Tim Geithner, president of the New York Fed under Bush and Treasury Secretary under Obama. Geithner “looked like a scared little boy” at a 2009 press conference laying out the stress tests. Also, he was way, way too close to Citigroup.
Bush Treasury Secretary Hank Paulson gets some score settling as well: Among other things, for pulling a “bait-and-switch” on taxpayers for claiming that TARP wouldn’t allow funds to be used for mortgage-loan modifications. She slams the Obama administration’s 2009 initiative to help struggling homeowners as little more than a public-relations stunt. She gets some revenge for, in her view, being shut out of the Paulson-Bernanke-Geithner boy’s club. Who wouldn’t want to see this bunch taken down?
The Naked Capitalism blog offers up more about the book, and it’s tempting to see Bair as the truth teller who wanted to stop the big banks but was foiled. Meanwhile, Felix Salmon of Reuters pushes back against some of Bair’s charges.More
Washington Mutual is now WMI Holdings Corp. No, this isn’t a 2008 blog post that suddenly popped up four years later. The remains of old WaMu that weren’t plucked by JPMorgan Chase completed its Chapter 11 bankruptcy reorganization this week. According to Dow Jones Newswires, WMI “consists primarily of WM Mortgage Reinsurance Co., a legacy reinsurance business incorporated in Hawaii and funded by a $75 million contribution from some WMI creditors.”
So that’s that.
Four years later, downtown Seattle has recovered from the loss of a major corporate headquarters. The thousands of employees who lost their jobs and shareholders who were ruined — probably not so much. Chase gained its nationwide network by purchasing the “good” part of WaMu. Like its too-big-to-fail/exist cousins, it is bigger than ever. Yet Seattle’s relative isolation from America’s media centers shows as this bookend to the biggest bank failure in American history goes largely unremarked.More
While Occupy was trying to shut down the Port of Seattle and damage it’s thousands of well-paying blue-collar jobs, the FDIC was reaching a settlement with three former Wasshington Mutual executives, including former CEO Kerry Killinger. The $75 million deal will apparently be paid mostly from the bank’s estate and insurer. Once again, the Obama administration has shown itself unwilling or unable to bring to justice the kingpins that brought on Depression 2.0.
If you just rolled into town, Washington Mutual was once one of Seattle’s most important corporate headquarters. It was for nearly a century a thrift engaged in the boring but safe business of taking deposits and making loans. Under Killinger, it became a powerhouse, a major financial institution. Unfortunately, most of that growth came from the dodgy subprime mortgages that were then sold to Wall Street and turned into swindles called derivatives. when the reckoning finally came, Washington Mutual became the biggest banking failure in American history. More than 4,000 jobs were lost and shareholders were wiped out.
The pattern in the aftermath is familiar: A strange lack of curiosity on the part of the Justice Department, a barely pursued and quickly stifled criminal probe, the too-big-to-exist banks got bigger and none of the bigwigs who cooked up the calamity were required to return their outlandish compensation. A taxpayer bailout sent the message that such behavior will be backed by Uncle Sam if the risky business goes sideways. Nobody went to jail.More
Lest we forget amid the market turmoil, earlier this month U.S. Attorney Jenny Durkan announced that the top executives who presided over the nation’s largest bank failure won’t face criminal charges. The “evidence does not meet the exacting standards for criminal charges in connection with the bank’s failure.” This despite the feds doing “hundreds” of interviews and examining “millions” of documents. Even $105 million to settle a civil suit will be paid by Washington Mutual’s insurers, not the executives and directors.
So this pretty much means that Kerry Killinger and his boyz got away with it.
Not one major figure behind the greatest financial collapse since 1929 has faced prosecution. The Obama Justice Department, led by a former white-shoe corporate lawyer, has shown a singular lack of curiosity about CountryWide, Goldman Sachs, Lehman Brothers, Bear Stearns, AIG, the holy credit rating agencies and all the other banksters and their enablers. But this event was not an act of God. It was brought on by the kind of reckless but highly profitable activities exemplified by WaMu. And this was not just an elephantine thrift peddling shoddy subprime loans to be securitized into swindles. Like all the big banks, it had a trading desk that, among other things, gambled in the capital markets with WaMu’s taxpayer-insured money.More
Reading between the lines of the latest Washington Mutual story by the Seattle Times’ Drew DeSilver, it sounds as if Kerry Killinger and his co-defendants tried to low-ball the FDIC in a settlement of a suit over their role in the thrift’s failure — and the government said, “no way.”
Former CEO Killinger, former Chief Operating Officer Stephen Rotella; and David Schneider, former head of WaMu’s home-loans division are named in the suit, alleging “gross mismanagement” that led to the largest banking failure in American history. As the story adds, “Killinger’s wife, Linda, and Rotella’s wife, Esther, also are named in the suit, for allegedly helping their husbands transfer homes and cash into trusts to keep them out of creditors’ hands.” What a class act.
The suit needs to proceed. The many thousands of shareholders, creditors and employees need answers on so many questions. The collapse of WaMu was not an act of God, nor were Killinger et al helpless victims. The damage done extends from lost jobs and investor wealth to the death of a very important Seattle headquarters. We need more suits, if necessary. Criminal investigations if warranted.More