Washington Mutual Preferred fka WAMPQ

[taxman007]

WaMu had 4 rescue offers last year.

http://seattle.bizjournals.com/seattle/stories/2009/04/27/story3.html?b=1240804800^1817477

As Washington Mutual struggled with bad loans and mounting losses last spring, four groups made offers to inject capital or buy the bank, according to a former executive familiar with the offers.

The offers included an $8 billion buyout from JPMorgan Chase & Co. and three capital infusions in exchange for minority stakes.

WaMu’s top executives, including chairman and chief executive Kerry Killinger, recommended that the board accept capital from Texas Pacific Group, a private equity firm, the executive said.

The board — in the habit of following management’s advice — approved the $7.2 billion capital injection led by TPG last April. It turned down the two other private equity bids and an offer from New York-based JPMorgan, according to the executive, who declined to be named.

At least one of the other private equity offers had requirements that were unattractive for the bank, the executive said.

Had JPMorgan bought the bank last spring, it would have assumed WaMu’s debt, according to the executive.

That means common shareholders, bondholders and WaMu’s creditors would not have lost everything when the company was seized by federal regulators Sept. 25. The company later filed for bankruptcy.

After WaMu collapsed, federal regulators sold the assets to JPMorgan for $1.9 billion.

The revelations, bolstered by interviews with other former WaMu executives, shed new light on what options WaMu had on the table during its perilous plunge into the red last year, and raise questions about whether the board exercised sufficient diligence in pursuing the best course for shareholders, executives said.

“The JPMorgan sale was not recommended to the board,” said the former executive familiar with the board’s discussions. “Management preference was strongly toward raising the capital and not the sale and, as a result, there was very little discussion about the viability of the JPMorgan Chase offer. Some people believe the board should have been more aggressive in saying, ‘Let’s pursue this JPMorgan thing; why are we so quick to say we should raise the equity?’”

A lawyer for former WaMu Chief Financial Officer Tom Casey and former WaMu President Steve Rotella said the two executives did not pressure board members in any way during WaMu’s search for capital last spring. He also said Casey and Rotella were “feverishly working” to reduce Washington Mutual’s exposure to risk.

“Washington Mutual was advised by Lehman Brothers and Goldman Sachs during the April capital raise, and those two investment banks were evaluating Washington Mutual’s options for the benefit of the board,” said Barry Ostrager, an attorney with Simpson, Thatcher & Bartlett in New York City.

Killinger declined comment through his Seattle spokesman, Roger Nyhus. Board members either did not return calls for comment or couldn’t be reached. Their lawyer, Seattle-based Ronald Berenstain, also declined to comment.

The new information, based on interviews with several executives, portrays a top management team that was overly optimistic about the future of the bank, the impending financial crisis and the collapse of the housing market. It also portrays a board of directors that largely failed to question management’s direction in the most crucial hours of the bank’s history.

Among the revelations, according to several executives:

– In June 2007, only two months before the worldwide collapse of the subprime mortgage market, WaMu’s management was preparing to expand further into risky consumer products, such as subprime and option ARM (adjustable rate mortgage) loans, even as signs of the housing market’s collapse flared across the country. The board largely didn’t question the strategy.

– In the last year of the bank’s history, top executives stopped involving some key members of the bank’s risk management team in board presentations, executives say. The team was responsible for ensuring an independent assessment of risks in the company. It’s unclear whether board members noticed or commented on that change.

– Board member Mary Pugh, under intense shareholder pressure last spring because of her position as chair of the finance committee, tried to organize a meeting between WaMu’s primary federal regulator and the board, to get its opinion on the bank’s issues. Killinger objected.
Gathering storm clouds

It was June 2007. The nation’s housing market was starting what would become a steep decline and an increasing number of homeowners with subprime and option-arm mortgages were starting to miss payments. Federal Reserve chairman Ben Bernanke was warning that subprime delinquencies had doubled over the last two years.

Killinger, in an annual strategy session with WaMu’s board and high-level executives, laid out a plan to expand further into risky consumer loans in a bid to increase overall returns, executives said. These money-making products had previously helped generate the bank’s massive growth, and Killinger sought to continue that strategy.

At the strategy meeting — held at Cedarbrook, the bank’s corporate retreat in the nearby city of SeaTac — Killinger’s plan went virtually unquestioned by the board, according to former executives familiar with the meeting and the company’s strategy.

Only one board member, Stephen Frank, offered an observation. He asked whether the company should be increasing credit risk “at this stage in the cycle,” according to the recollection of an executive in attendance at the meeting. Frank couldn’t be reached for comment.

The strategy was adopted by the board, although its implementation was truncated later that year by market events, according to the executive.