FDIC phones JPMorgan CEO
A few days after Lehman fell, Bair called Jamie Dimon, JPMorgan’s chief executive, to ask if he was interested in buying WaMu out of receivership. She also urged him to seek an open-market acquisition of the bank. On Sept. 19, JPMorgan told regulators that it wasn’t interested in acquiring WaMu, because the debt of the holding company was too great.
A handful of banks, including Citigroup, Wells Fargo, and Banco Santader in Brazil had expressed interest in acquiring the bank, but now they also balked.
By Sept. 23, WaMu had just $4.6 billion in cash to meet its liquidity operations. The Office of Thrift Supervision contacted several potential banks to gauge their interest in buying WaMu out of bankruptcy. JPMorgan, according to the examiner, was the only serious bidder.
That Friday the OTS shut down WaMu and placed it into receivership with the FDIC. The institution, which earlier in the summer held more than $300 billion in assets, was sold for just $1.88 billion.
FDIC bidding process “less than optimal”
Though Hochberg ultimately concludes that the sale was fair, he came down hard on the FDIC for failing to adequately cooperate with his investigation, and questions some of the agency’s actions along the way.
The FDIC’s bidding process, he said, was “less than optimal” and “could have been better.” He notes that the Sept. 16 call from FDIC’s Bair to JPMorgan’s Dimon came “before any formal opening of the bidding process.”
Hochberg also says that “some of the FDIC’s actions lack transparency.” As a result, he was “unable to determine whether the FDIC fully understood the value of the assets it seized and sold.”
In general, Hochberg was frustrated with the agency’s balking.
“The FDIC made clear that attempts to compel discovery could be met with certain obstacles . . . which could effectively delay and discovery beyond the tine limits of the examination,” Hochberg wrote. The FDIC had said it would litigate to keep internal deliberations secret, he said.
The agency also responded selectively to document requests, and refused to make Bair and two other senior officials available for interviews. The FDIC’s lack of cooperation was especially egregious compared with other players in the WaMu sale, he said. The OTS, for example, “was helpful and cooperative,” he wrote. (Hochberg didn’t return a call left on Tuesday).
FDIC says it cooperated
In a lengthy statement sent in response to a Center query, FDIC spokesman Andrew Gray said that the agency cooperated, not just with the examiner’s investigation, but also with investigations into WaMu’s failure by Congress and the agency’s own inspector general.
“It is unprecedented for the FDIC to let its process be subject to review by a bankruptcy examiner,” he wrote. “However, the FDIC voluntarily cooperated in an effort to move the settlement agreement forward, including the production of numerous documents and interviews with key FDIC senior staff. The FDIC General Counsel determined that interviewing other officials, including the Chairman, was not necessary to adequately respond to the needs of the special examiner and would set a dangerous precedent.”
Ultimately, Gray said, it is important to point to the broader conclusion of the report. “The settlement is fair, the process was correct and there was no undue influence on any party.”
Lack of transparency by the FDIC, while a concern, did not affect his final conclusions, Hochberg said.
Hochberg’s report, though valuable, doesn’t address the decision-making that led to Washington Mutual’s precarious position as of the spring of 2008. For that, it is instructive to turn to an earlier report co-authored by the inspector generals of the FDIC and the Treasury Department, which concludes that the bank failed because of management’s pursuit of a high-risk lending strategy that included liberal underwriting standards and inadequate risk controls along with, in many instances, fraud in mortgage originations.
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