Washington Mutual Failure

Topics: Washington Mutual, Federal Deposit Insurance Corporation, JPMorgan Chase Pages: 10 (3656 words) Published: August 14, 2012
Intra/Entrepreneurship and Business Management
Business Failure Case Study

Washington Mutual Failure
Failing in business isn't fatal. It's often a precursor to success. It's not uncommon for successful entrepreneurs to fail before achieving success. During turbulent economic times, such as now, we can easily find ourselves shifting the blame for the failure of our businesses to factors outside of our control. Similarly in economic boom times we can find ourselves being quite proud of the results we achieve almost without having a clue as to how we have accomplished them. This somewhat hypocritical approach to business can be very dangerous. In order to ensure the future growth and sustainability of our businesses we have to be honest about what we are doing right and what we are doing wrong. Seattle-based Washington Mutual, Inc. (WaMu), one of the nation's leading financial services companies, is the outgrowth of a demand to rebuild its home city after a devastating late 19th-century fire. Since then the company has transitioned from a building loan to a mutual bank. Until the 1960s, the company operated solely in the Seattle area. Then, an acquisition drive during the 1990s propelled Washington Mutual to the top ranks of U.S. home mortgage makers. Faced with a steady downward pressure in the sector at the midpoint of the first decade of the 2000s, Washington Mutual has redirected its attention to its retail banking business.

The financial turmoil in the United States has claimed Washington Mutual, on its 119th year anniversary and is being called the biggest banking failure in American history. The United States regulators have seized and sold some of Washington Mutual’s assets to JPMorgan for nearly two billion dollars. This seizure and sale is an attempt to clean up the banking industry filtered with toxic mortgage debt. Washington Mutual had insufficient liquidity to meet its obligations and was in an unsafe and unsound condition to transact business; the government had no choice but to step in. The birth of the financial institution responsible for forming Washington Mutual, Inc. occurred after the near-death of the city. On June 6, 1889 a glue pot in the basement of a downtown building boiled over engulfing the downtown district in flames. In total, 25 city blocks, 120 acres, including the heart of the city were destroyed. It was time for the city to form a new financial institution, one created specifically to help the rebuilding of the city of Seattle. On September 25, 1889 Washington National Building Loan and Investment Association filed articles of incorporation offering its stockholders a safe and profitable means for investing and lending. On June 25, 1908, the company changed their name to Washington Savings and Loan Association and in 1911 Eugene Favre, co-founder of Murphy Favre, Inc., became a member of the board marking the start of a relationship between the investment firm and Washington Mutual.

During World War I, Washington Mutual expanded its assets by 68 percent, escaping the impact of the recession that followed. The company emerges from the war with the reputation as the strongest savings and loan institution in Washington. Deposits increased strongly from $15 million in 1921 to more than $26 million two years later. The Wall Street stock market crash of 1929 gave way to a decade long economic depression that brought devastation for the U.S. banking industry. The years were difficult but Washington Mutual persevered avoiding any financial ruin. BY the end of the 1930’s, Washington Mutual had nearly 100,000 depositors and was about to benefit once again from the economic growth brought about by the century’s second great military struggle. During World War II, Washington Mutual sold nearly $30 million in war bonds. In 1941, the bank merged with Coolidge Mutual Savings Bank, increasing its resources to more than $77 million and its deposits were more than...
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